Globalization and the Nigerian Financial Sector: a Quagmire or a Thoroughfare?

Abstract

This paper examined the relationship between globalization and the performance of the Nigerian financial sector. Assets of the Nigerian financial sector were used as performance indicators of the Nigerian financial sector. The data used are Nigerian yearly data from 1985 to 2011. The data were analyzed using OLS statistical technique, Johansen’s co-integration and error correction mechanism. We used Augmented Dickey-Fuller statistics to test for stationarity. Globalization variables are: degree of openness, foreign direct investment, portfolio investment flows, external debt flows, nominal exchange rate and gross capital formation. The results showed that the Nigerian financial sector had a positive relationship with globalization but this was statistically not significant. It is therefore recommended that for the Nigerian financial sector to optimally benefit from globalization, the recent bank re-capitalization and debt recovery exercise and monitoring of macroeconomic stability should be encouraged to gain confidence by investors in the financial sector. 

Keywords: Co-integration, Financial Sector, Globalization, Nigeria, and unit root