FINANCIAL DEEPENING AND ECONOMIC GROWTH NEXUS IN NIGERIA (1981-2014): A CAUSALITY ANALYSIS
Resumo
This paper investigates the nexus between financial deepening and economic growth in Nigeria for the period spanning 1981 to 2014. The main objective of the study was to determine the causal linkage between financial deepening and economic growth. The study used annual time series data sourced from Central Bank of Nigeria Statistical Bulletin 2015. The data collected were analyzed using, Johansen co-integration test, Vector Error Correction Mechanism (VECM) test vis-à-vis Granger causality test used as tools for data analysis. The pair- wise Granger causality test result revealed that there is a bidirectional causality running from financial deepening proxied by ratio of money supply to GDP to economic growth proxied by real GDP and from economic growth proxied by real GDP to financial deepening proxied by ratio of money supply to GDP, ratio of credit to private sectors to GDP as well as stock market capitalization. The co-integration test result revealed that there is long run relationship among financial deepening proxied by ratio of money supply to GDP, ratio of private sector credit to GDP, stock market capitalization and economic growth proxied by real GDP. Hence, it is recommended among others that policies that would guarantee increase in the level or rate of Money supply to GDP in Nigeria such as diversification of sub-markets, trading in different financial instruments, offering savers and investors a wide range of financial instruments which differ in terms of liquidity and yields among others should be observed considerably so as to witness unprecedented increase in the level of economic growth in Nigeria.
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