FINANCIAL DEEPNENING AND ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This research work empirically investigates the relationship between financial deepening and economic growth in Nigeria. The financial sector in general has often been described as one of the major engines of growth in both growing and developing economies. This work streamlines this nexus and focus on the access to financial facilities often described as financial deepening. The work employed monetary and macroeconomic variables including Real Gross Domestic Product (RGDP), Broad Money Supply (M2/RGDP), Deposit Interest Rate (DPER), Market Capitalisation (MCAP) and Domestic Credit as ratio of GDP (DCRED). Data on the respective variables were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin (2019) and the World Development Indicators (WDI, 2019). The Unit Root test was applied to determine the level of stationarity of the variables while Johansen Co-integration technique was also applied to determine the validity of co-integrated relationship. The Ordinary Least Squares (OLS) method of regression analysis was utilised in assessing the nexus. The result obtained indicated that a positive and significant relationship exists between Domestic Credit, Money supply, Market Capitalisation, Deposit Interest rate, and economic growth in Nigeria. It was thus concluded that financial deepening is a significant driver of growth in Nigeria. The work recommended among others, strategic policies framework to enhance and maintain the positive impact of money supply, encouraging comparative and competitive interest rate levels, provision of suitable political and social environment for private sector growth and advancements, and increase in the provision of financial facilities by the financial institutions.