Business and Economics

Financial Intermediation Development and Economic Growth: Empirical Evidence from Nigeria
Iwedi Marshal, Okey-Nwala Precious Onyinye, Kenn-Ndubuisi Juliet Ifechi, Adamgbo Suka Lenu Charles

This study examines the long run and short run dynamics between financial intermediation development and economic growth in Nigeria using annual time series data spanning the period 1970-2015 by employing the VAR testing approach, Johansen co integration testing technique and Engle and granger causality test. The results indicate that there is a presence of long run equilibrium between financial intermediation development indicators and economic growth. This implies that both indicators affect Nigeria economy in the long run while the VAR result shows that both indicators of financial intermediation development exhibit positive and negative signs when lagged once or twice and this relation is low and insignificant especially in the case of credit to private sector to GDP, this coefficient did not show the expected sign. A possible explanation for this is that credits to private sector are not channeled to productive uses but are diverted to other personal uses. The result of causality shows a unidirectional causality running from the financial intermediation development indicators to real GDP and not vice versa. The study concludes that M2 to GDP exert more influence on the Nigeria economy than the credit to private to GDP. As such it was recommended that policy on financial development should be emphasized in other to propel and stir up economic growth in Nigeria.

Full Text: PDF