FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA

Abstract

The study examines the relationship between financial development and economic growth in Nigeria from 1980 to 2022. The study is anchored on the endogenous growth theory. Data were sourced from the Central Bank of Nigeria Statistical Bulletin. The analysis of the data was done using Autoregressive Distributed Lag (ARDL) model and Toda-Yamamoto Granger noncausality test. The study found that a 1% increase in Financial Deepening leads to 0.79% increase in economic growth and a 1% increase in stock market capitalization leads to 0.29% increase in economic growth. A 1% increases in real interest rate results in 0.55% increase in economic growth. There is unidirectional causality running from Gross Domestic Product to stock market capitalization, real exchange rate, and inflation. There is bidirectional causation between Gross Domestic Product and real interest rate. However, there is no causal relationship between gross domestic product and financial deepening in Nigeria. Government should pursue policies that can help develop the financial sector.