Effects of Financial Systems Development on Nigeria’s Economic Growth: 2011 – 2021

Abstract

The financial system has been identified as a veritable enabler of
enhanced productivity and sustained growth of an economy. This study
investigates the effects of financial systems development on Nigeria’s
economic growth using the Autoregressive Distributed Lag (ARDL)
model. This empirical investigation underscores the substantial positive
impact of financial development on economic growth, through
improvement in the performance of key indicators such as market
capitalization, aggregate investment, prime lending rates, degree of trade
openness, and exchange rates. Our findings reveal that overall financial
development, including bank and stock market development, significantly
contributes to fostering economic growth. This aligns with existing
empirical literature that consistently demonstrates a positive association
between financial sector development and economic growth. The study
aligns with economic theory, providing logical justifications for the
indispensable role of robust financial institutions in promoting economic
growth. However, the study reveals that aggregate domestic savings
exhibit a positive but statistically insignificant relationship with
economic growth. This could be because savings are channeled more to
speculative and trading activities than real production activities. Based
on the findings, policymakers are encouraged to focus on removing the
infrastructural bottlenecks inhibiting production activities in the country
and facilitate channeling more savings to real production activities.
Priority should be given to expanding access to financial services for both
consumers and producers. Additionally, accelerating the integration of
financial markets, particularly the bond market, is identified as a
potential avenue for significantly boosting access to finance by the
private sector.