Research Article
Open Access
Effect of Financial Market Development on Nigeria’s Economic Growth
Abstract
This study examined the effect of financial market development on economic growth in Nigeria between 2013 and 2023. Financial market development was proxied using broad money supply (M2), savings, time deposits, and domestic credit to the private sector, while economic growth was measured using Gross Domestic Product (GDP). Secondary data were sourced from the Central Bank of Nigeria (CBN), World Bank, and other relevant financial databases. The study employed the Autoregressive Distributed Lag (ARDL) technique after conducting stationarity tests using the Augmented Dickey-Fuller (ADF) approach. Findings revealed that broad money supply exerted a negative but insignificant influence on economic growth, while domestic credit to the private sector and inflation exhibited positive but insignificant effects. The study further established the existence of a long-run relationship between financial market indicators and economic growth. The study concludes that financial market development remains a critical driver of economic growth; however, inefficiencies in financial intermediation and macroeconomic instability limit its effectiveness in Nigeria. The study recommends strengthening financial sector reforms, enhancing financial inclusion, and improving credit allocation to productive sectors.
Keywords
Financial Market Development, Economic Growth, Broad Money Supply, Domestic Credit, ARDL, Nigeria.
References
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Persyn D, Westerlund J. (2008) Error-correction-based cointegration tests for panel data. Stata J 8(2):232–241
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Romer PM (1986) Increasing returns and long-run growth. J Polit Econ 94(5):1002–1037 Romer PM (1990) Endogenous technological change. Journal of political economy 98(5, part 2): S71-S102
Sakyi D, Boachie M, Immurana M (2016) Does financial development drive private investment in Ghana? Economies 4(27)
Tchamyou V.S (2019) The role of information sharing in modulating the effect of financial access on inequality. J Afr Bus 20(3): 317–338
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Tchamyou V.S, Asongu SA (2017) Information sharing and financial sector development in Africa. J Afr Bus 18(7):24–49
Tchamyou V.S, Erreygers G, Cassimon D (2019) Inequality, ICT and financial access in Africa. Technol Forecast Soc Chang 139(February):169–184
World Bank. (2023). Nigeria Economic Update. Washington, DC: World Bank Publications.
Wu S (1999) A comparative study of unit root tests with panel data and a new simple test. Oxf Bull Econ Stat 61(0):631–652
Nathaniel S and Iheonu C. (2019) Carbon dioxide abatement in Africa: the role of renewable and non-renewable energy consumption. Sci Total Environ 679:337–345
Muyambiri B (2017) The financial development and investment nexus: empirical evidence from three southern African countries (doctoral dissertation). Econ Polit Wkly 42(1):47–59
Pedroni P (1999) Critical values for cointegration tests in heterogeneous panels with multiple regressors. Department of Economics Working Papers 2000-02
Maddala G, (2003) Financial development and financing constraints: international evidence from the structural investment model. Rev Financ Stud 16(3):765–J Econ Bus 63(2):139–151.
Murty K, Soumya A (2007) Effects of public investment on growth and poverty. Comp Econ Res 21(2):119–136.
Levine, R. (2005). Finance and Growth: Theory and Evidence. Handbook of Economic Growth, 1, 865-934.
Mathieson D.J (1979) Financial reform and capital flows in a developing economy. Staff Papers 26(3):450–489
Misati R.N and Nyamongo, E.M (2011). Financial development and private investment in sub-Saharan Africa.
Muyambiri B, Odhiambo N.M. (2018) The causal relationship between financial development and investment: a review of related empirical literature.
Ndikumana L (2000) Financial determinants of domestic investment in sub-Saharan Africa: evidence from panel data. World Dev 28(2):381–400
Odeniran SO, Udeaja EA (2010) Financial sector development and economic growth: empirical evidence from Nigeria. Econ Financial Rev 48(3):91–124
Odhiambo NM (2010) Finance-investment-growth nexus in South Africa: an ARDL-bounds testing procedure. Econ Chang Restruct 43(3):205–219
Oikarinen E, Bourassa S, Hoesli M, Engblom J (2018) U.S. metropolitan house price dynamics. J Urban Econ 105(C):54–69
Osinubi, T. S., & Amaghionyeodiwe, L. A. (2010). Stock Market Development and Economic Growth in Nigeria. International Research Journal of Finance and Economics, 40, 32-45.
Oyaromade R (2005) Financial sector reforms and financial savings in Nigeria. In: Selected papers for the Nigerian economic society conference, 427–448
Pedroni P (2004) Panel cointegration: asymtotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory 20:597–625
Persyn D, Westerlund J. (2008) Error-correction-based cointegration tests for panel data. Stata J 8(2):232–241
Pesaran M (2007) A simple unit root test in the presence of cross-section dependence. J Appl Econ 22(2):265–312
Romer PM (1986) Increasing returns and long-run growth. J Polit Econ 94(5):1002–1037 Romer PM (1990) Endogenous technological change. Journal of political economy 98(5, part 2): S71-S102
Sakyi D, Boachie M, Immurana M (2016) Does financial development drive private investment in Ghana? Economies 4(27)
Tchamyou V.S (2019) The role of information sharing in modulating the effect of financial access on inequality. J Afr Bus 20(3): 317–338
Tchamyou V.S (2020) Education, lifelong learning, inequality and financial access: evidence from African countries. Contemp Soc Sci 15(1):7–25
Tchamyou V.S, Asongu SA (2017) Information sharing and financial sector development in Africa. J Afr Bus 18(7):24–49
Tchamyou V.S, Erreygers G, Cassimon D (2019) Inequality, ICT and financial access in Africa. Technol Forecast Soc Chang 139(February):169–184
World Bank. (2023). Nigeria Economic Update. Washington, DC: World Bank Publications.
Wu S (1999) A comparative study of unit root tests with panel data and a new simple test. Oxf Bull Econ Stat 61(0):631–652