FINANCIAL DEEPENING AND THE MANUFACTURING SECTOR OUTPUT IN NIGERIA

Abstract

This paper investigates the effect of financial deepening on manufacturing sector output in Nigeria. One of the challenges faced by the manufacturing sector is inadequate finance because most incipient entrepreneurs do not have the financial capacity therefore they look at the financial institutions for assistance. So the specific objective of the study are to examine the effect of the ratio of private sector credit to gross domestic product and the total number of banks  on the manufacturing sector output in Nigeria. Quarterly time series data were utilized for the period 1985q1 to 2018q4 for the analysis. The Autoregressive Distributed Lag (ARDL) technique was employed for the estimation. The results obtained show a positive but insignificant relationship between the manufacturing sector output and the total number of banks, the ratio of the broad money supply to GDP and the ratio of market capitalization to GDP both in the long run and the short run. However, a negative relationship exists between the ratio of private sector credit to GDP, the prime interest rate and ratio of savings to GDP and the manufacturing sector output both in the long run and short run. The recommendations made among others are that the private sector credit and the broad money supply should target the manufacturing sector in the economy and also the prime interest rate should be at a single digit level so that the manufacturers can access adequate credits.