Financial Development and Economic Growth: Empirical Evidence from Nigeria
Abstract:
This work examines the relationship between financial development and economic growth in Nigeria. It focuses on the impact of stock market and bank deepening variables such as market capitalization, value traded, turnover ratio referred to as SMD in the study as well as BCP to capture bank deepening has on economic growth of Nigeria. Stock market provides the avenue through which long term fund could be raised for investment project. It is reputed to perform critical functions, which promote economic growth and prospects of the economy. On the other side banks also provide fund in the short term that can also be used for investment. Empirical evidence linking financial market development to economic growth has been inconclusive even though the balance of evidence is in favour of a positive relationship between financial market development and economic growth. This paper explores the hypothesis that financial market development promotes economic growth in Nigeria and attempts to confirm its validity or otherwise, using annual data from 1981 to 2010 for Nigeria particularly in an era of bank consolidation. All the variables are stationary at first difference using the Augmented Dickey Fuller(ADF) and Phillip Perron(PP) tests. The Johansen Cointegration test result showed that there exist a positive relationship between financial development and economic growth, also by employing vector error correction model (VECM) technique on the commonly used financial development indicators. From the result, it was revealed that the coefficient of the error correction term ECM (-1) carries the expected negative sign and is highly significant at 5.0 per cent level. The model validates the hypothesis that the financial market development promotes economic growth in Nigeria during the period of analysis.ORDER COMPLETE MATERIAL (CHAPTER 1-5)
