Impact of Financial Deepening on Economic Growth in Nigeria

Abstract

This study seeks to examine the impact of financial deepening on economic growth in Nigeria.  An annual data covering the period of 1990 – 2017 was used. In other to test the objective of the study, multiple regression techniques were used, also, error correction model was conducted to test the long run equilibrium of the model. Findings revealed that the variable has a long run effect on economic growth since the ECM result reveals a negative and significant relationship. Also based on the short run test, the result reveals that there is a negative and insignificant relationship between the ratio of credit to private sector to gross domestic product (CPS_GDP) and gross domestic product (GDP). There is also a negative and insignificant relationship between inflation rate (INFL) and gross domestic product (GDP).Furthermore, the result shows that there is a positive and insignificant relationship between the ratio of gross fixed capital formation to gross domestic product and gross domestic product (GDP).Also, it was found that there is a negative and insignificant relationship between the ratio of money supply to gross domestic product in the economy and gross domestic product (GDP). Based on the findings, we recommended that government policy should motive financial institutions to grant low cost loans and advances to private investors and to monitor the use of the loan in the economy. Government should also ensure that they create enabling environment for domestic investors to invest funds. Finally, the government yearly budgets should be directed towards capital expenditure rather than recurrent expenditure in the country