Financial System Broadening and Economic Performance

Abstract

A considerable amount of scholarly works have examined the link between financial system broadening and economic performance using varieties of econometric models. Although, most of these studies have concentrated attention on the developed economies, very few have examined the impact on emerging economies. In Nigeria, some efforts have been made, though not comprehensive enough to model this nexus. This has created gap in the literature which needs to be filled. It is in view of this that this study examines the tie between financial system broadening and economic performance. The time series data was collected from the Central Bank of Nigeria Statistical Bulletins covering a period of 55 years (1960 – 2014) and analyzed using descriptive statistics, Pearson’s correlation using SPSS 22, and multiple regression analysis using Eviews 8.0. The findings reveal that financial system broadening via aggregate money supply has positive effect on the economic performance. However, financial system broadening via credit to private sector has a negative effect on the economic performance. The study also finds that money supply is positively correlated with economic performance. Private sector credit also shows a positive relationship with economic performance. The study was limited by including only fifty-five years in the selection of period covered, making this possibly biased selection and it may not be adequate to generalize the results for Nigeria. The study has contributed to the economic performance literature with a better understanding of the role of financial system deepening and its association with economic performance. This study provides valuable knowledge to policy makers and economic managers, to refine their current policies and subsequently improve financial system broadening and economic performance.

Keywords: Economic performance, financial system broadening, Nigeria.