Financial Deepening and Economic Growth: Reassessing the Empirics for Nigeria

Abstract

It has long been established within the theoretical and empirical literature that financial sector development plays a crucial role on the growth performance of an economy. However, the stage of growth of the financial sector and that of the economy of which this popularized positive effect is most felt still remains a subject of inquisition. The thrust of this paper is thus to investigate further the nature of the long run impact of financial deepening within the framework of the Johansen cointegration analysis and the vector error correction mechanism (VECM). On the overall, the result is line with the traditional argument of this the finance-growth nexus. However, we discover a long run non-linear negative relationship between the finance and growth. Thus, suggesting that the effect of financial deepening on growth may vary depending on the stage of growth of the financial sector.