Economic Integration in the ECOWAS: Implications for Financial Intermediation in Nigeria

Abstract

The study employed the autoregressive distributed lag (ARDL) approach to co-integration to estimate a set of four models with a view to examining the impact of ECOWAS integration on financial intermediation in Nigeria, which was differentiated by type of financial development indicators (FD) used as dependent variable in the different models. The dependent variables were the proxies for financial intermediation in Nigeria, namely; ratio of credit to private sector provided by commercial banks to national GDP (CPS_GDP); ratio of broad money supply (M2) to GDP (M2_GDP); and ratio of commercial bank’s assets to the combination of commercial banks’ and central bank’s assets (COMB_ASSETS). A composite measure of the three financial intermediation indicator was also used in the fourth model. The study data ranged from 1960 to 2018, and comprised Nigerian and ECOWAS macroeconomic variables obtained from different sources.  ADF test was conducted to test for unit root and the result showed that the variables have a unit root. Across the four models, the results of the study showed that ECOWAS regional economic integration does not significantly influence the degree of financial intermediation in Nigeria, and may not be promoting development of the Nigerian financial sector. On the contrary, domestic macroeconomic developments are, however, more supportive of financial intermediation in Nigeria, and suggest the need to improve monetary conditions and credit access and availability. It has become imperative, therefore, to carry out a cost-benefit and impact analyses of the region’s integration to help reposition the country for its benefits.

Keywords: economic integration, financial intermediation, autoregressive distributed lag (ARDL), co-integration, ECOWAS, Nigeria

JEL Classification: E44, F36, G2, G32, G21.

DOI: 10.7176/JESD/11-4-06

Publication date: February 29^th 2020