Financial Liberalization and Economic Growth: Implications for the Conduct of Monetary Policy in Emerging Economies

Abstract

This study examined the impact of financial liberalization on the growth of Nigerian Economy. It surveys a stream of theoretical and empirical literatures on both financial liberalization and economic growth.

The data employed were gathered from various sources such as the Central Bank of Nigeria Statistical Bulletin, Economic and Financial Review, monthly and annual reports and statement of accounts for various years, and the publications of international monetary fund such as international monetary statistical Year Book and Bureau office of statistics.

The study made used of co-integration methods by Johansen (1988) and Johansen and Juselius (1988) and Johansen (1990) to estimate the relationship between financial liberalization and growth of Nigerian Economy.

The times series property of quietly data employed were first to be investigated. The unit root result showed that non of the variable was stationary in level but became stationary after taken the first difference. This is followed by cointegration test which rejected the non-hypothesis of no cointegration and showed at most, one cointegrating vector Results from error correction showed that speed of adjustment is approximately 2.9 percent, that is, when there is deviation from equilibrium, only 2.9 percent is corrected in one quarter as the variable moves towards restoring equilibrium. Results from this paper clearly showed that financial sector has impact  on the growth of Nigerian Economy but not remarkable impact which might be due to underdeveloped financial market, inadequate financial instrument and poor monitoring of the activities of money market by the central bank. However, in line with the findings of this paper, we recommend that adequate monitoring by the central bank on the activities of commercial banks is required to boost production of real sector of Nigerian economy.