Financial Sector Development and Economic Growth in Nigeria

This study investigates the influence of financial sector development on the economic growth of Nigeria. It examines how financial access, financial depth, financial stability, and financial efficiency affect Nigeria's gross domestic product using annual series data from 1986 to 2021, and sourced from the Central Bank of Nigeria data bank. The descriptive, unit root, co-integration and Parsimonious error correction as well as the Granger Causality test were adopted at the 95% confidence level. From the analysis, all variables are integrated at order one; and presented of long-run cointegration. The Parsimonious error correction model confirmed that financial access and its depth are both positive and significant to gross domestic product, whereas financial stability and efficiency are both positive but insignificant to gross domestic product. The Granger causality test demonstrated a one-way movement from to gross domestic product to financial access, and a two-way causality between financial depth and gross domestic product only. In conclusion, the expansion of Nigeria's financial industry has a substantial impact on the growth of her economy. The study thus suggests that financial institutions should continue to allocate more funds to the private sector in the form of credit in order to stimulate more growth prospects in the economy. In addition, interest rates paid to depositors should be improved to attract more deposits; while simultaneously cutting back the rate charged on business loans and advances in order to encourage investors to borrow funds and invest in profitable ventures that will quicken growth.