FINANCIAL SYSTEM STABILITY, INSECURITY AND REAL SECTOR GROWTH IN NIGERIA

Abstract

From 1985 to 2021, this article analyses the effect of a stable financial system on real sector growth in Nigeria. Information for this study came from secondary sources such as the World Bank's World Development Indicators, the Central Bank of Nigeria's Statistical Bulletin, the National Bureau of Statistics (NBS), and the audited annual report and accounts of deposit money banks (DBMs). To determine if the variables were stationary, the Augmented Dickey Fuller unit root method was used. Different orders of integration were shown by the ADF unit root test. As a result, while some variables got stationary at order zero (I(0)), others became stationary at order one (I(1)). In light of this circumstance, the ARDL Model was used in the research. Empirical result from the ARDL analysis found that liquidity ratio (LR), and kidnaping rate (KPR) had a positive and significant relationship with growth rate (GRT) in the long–run and both the previous and second year period of the short-run. However, nonperforming loans (NPL) and arm robbery rate (ARR), are reported to be negative with growth rate (ARR) in the long-run as well as the previous and second year period of the short-run. Finally, the relationship between exchange rate (EXR) and growth rate (GRT) suggest a negative but significant relationship in the current and second year period of the short-run. Hence, it was concluded that financial system stability had a significant influence on growth rate in Nigeria. It was recommended amongst others that, the financial institutions particularly the deposit money banks, (DMBs) should increase their drive for deposit. This will help them increase their liquidity position and withstand periods of instability.