Impact of Financial Development Indicators on Economic Growth In Nigeria, 1980 – 2013

Abstract

An empirical investigation of the impact of financial development on economic growth in Nigeria was carried out in this paper by employing co integration test and VECM, using the data of annual time series for the period 1980 – 2013. The findings reveal the existence of 3 co integrating vectors which show a long run relationship among the variables. The VEC results show that the ratio of broad money supply to GDP and ratio of domestic credit to private sector to GDP have no significant impact on economic growth in Nigeria. The results suggest that economic growth can be enhanced through increases in ratio of broad money supply to GDP and ratio of domestic credit to private sector to GDP. Thus, if the objective of a policy is to sustain a high rate of economic growth in Nigeria, priority should be given to the development of financial sector. This paper finds support to “supply-leading” (i.e “finance- led growth”) economic growth.

Keywords: Broad money supply, domestic credit, Economic growth, VECM, Finance-led growth.