Financial Sector Development: Evidence from Institutional Reforms in Nigeria

Abstract

The paper examine the impact of institutional reforms on financial sector development in Nigeria using data that span the periods of 1996 to 2011. Our findings indicates that measures of institutional reform such as regulatory quality (Rqty), government effectiveness (Gef); and political stability and absence of voice (Psav) impact strongly on financial sector development (Dcps) in Nigeria,  suggesting the need for institutional reforms that can promote viable regulatory system for the enhancement of contract enforcement; property right protection, corruption control; and to avoid any form of politically motivated violence, unconstitutional overthrownment and terrorism in Nigeria. The results of the causality test also show that financial sector development (Dcps) granger causes economic growth (Rgdp) in Nigeria. However, it is evident that future improvements in institutional quality in Nigeria, through initiation of all-encompassing reforms in the institutions, may promote financial sector development which may in turn promote economic growth.