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ABSTRACT
The study examines the impact of financial deepening on economic development in Nigeria. However, the specific objectives include to examine the impact of each of the indices of financial deepening on economic development. These indices include the ratio of Broad money supply to GDP, the ratio of private sector credit to GDP, ratio of financial savings to GDP among others.
The study employs secondary data extracted from the Central Bank of Nigeria Statistical Bulletin of 2017 and the World Bank development indicator. The method of data analyses include the co-integration technique and the error correction mechanism (ECM) on a time series data covering the period of thirty two years (1986 – 2017).
The findings of the study revealed that the ratio of broad money supply to gross domestic product (M2/GDP) has a negative and significant impact on Human development index (HDI) in the short-run, while the impact of M2/GDP on HDI is negative and not significant in the long-run. This means that the total stock of money supply does not enhance the level of economic development. The second year lag of bank credit to private sector to gross domestic product (DDCPS) has a negative and significant effect on HDI in the short run, while the impact of CPS/GDP on HDI is positive but not statistically significant in the long-run. This implies that increase in banks’ credit to the private sector increases banks assets and economic development. The ratio of market capitalization to gross domestic product (MCAP/GDP) has a positive and significant impact on HDI in the short-run, while the impact of MCAP/GDP on HDI is positive and not significant in the long-run, the ratio of financial savings to gross domestic product (FS/GDP) has a positive and significant impact on HDI in the short-run, while the impact of FS/GDP on HDI is positive but not significant in the long-run and Inflation rate has a negative and not significant relationship with HDI in the short-run, while the impact of inflation rate on HDI is negative and not significant in the long-run. A major recommendation of the study is that the monetary authorities should employ the expansive credit policy which encourages lending on credit to credit worthy customers as this would enhance economic development in the long-run.
