INDICATORS OF FINANCIAL DEEPENING AND ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study examined the indicators of financial deepening and economic growth in Nigeria. The objectives of this research work is to determine the direction of causality as well as investigate the impact of the various indicators of financial deepening on economic growth in Nigeria. The analysis was based on data extracted from World Development Indicators (WDI, 2022) and uses the annual time series data for the period 1981-2022. Augmented Dickeyfuller(ADF) test was used to test for the stationary of the variables and they were found to be stationary at first difference, then the Granger causality tests which was used to determine the first objective of the study and the ARDL technique for the second objective was carried out. Bounds test was used to establish if the stationary variables are co-integrated in the long run. The result of stationarity and diagnostic tests reveals that the model is well specified and could be used for policy analysis. The study conclusively reveals that for the first objective, there is no existence of causality between the financial deepening indicators and economic growth. The second objective however revealed that broad money supply negatively affects the country’s economic growth, hence policymakers should diversify the economy and as well as establish risk management mechanisms and regulations to prevent financial instability.