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ABSTRACT
This study examined the impact of financial sector development on economic growth in Nigeria for the period of 1981-2019. The main objective of this research work is to examine the impact of financial sector development on economic growth in Nigeria and the specific objectives of this research work are to examine the impact of financial deepening in the financial sector on economic growth in Nigeria, to examine the relationship between money supply in the financial sector and economic growth in Nigeria and finally to examine the relationship between private sector credit in the financial sector and economic growth. The study used Error Correction Mechanism (ECM) to examine the relationship between financial sector development and economic growth in Nigeria. The study found out that money supply had a negative but insignificant impact on economic growth, private sector credit had a negative but insignificant impact on economic growth, foreign direct investment inflows had a positive and significant impact on economic growth and finally, financial deepening had a positive and significant impact on economic growth and this means that financial sector development will lead to high and sustainable economic growth. The study therefore recommends that Government should employ favourable policies (like lower tax and tax holidays for new investors) that promote the inflow of international capital and foreign investment, so as to enhance the production capacity of the nation. Also, to further strengthen and encourage growth in the Nigerian economy, there is need to ensure macroeconomic and political stability. The government should also provide adequate security as protection of lives and property (property rights) is critical in encouraging investors to invest in or capital and money market.
