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ABSTRACT
This study focuses on financial development and economic growth in Nigeria during the period of 1986 – 2020. Specifically, it seeks to examine the effect of financial deepening measured as the ratio of broad money supply to GDP, interest rate, stock market recapitalization and credit to private sector to GDP on economic growth in Nigeria. The study adopted recent econometric techniques such as Augmented Dickey-Fuller (ADF) and the Phillip-Perron (PP), Unit Root Tests, cointegration test as well as the Toda-Yamamoto causality test was used to accomplish its objectives. The results revealed that financial development has significant positive relationship on economic growth in Nigeria only in the short-run while negative impact in the long-run and that causality runs from financial development to economic growth. Furthermore, the study revealed that the stock market capitalization have significant positive impact on economic growth in Nigeria in the short run while negative significant in long run. The interest rate has positive insignificant effect on economic growth in Nigeria only in the short run while negative significant effect in the long run. The ratio of domestic credit to private sector to GDP have positive significant impact on economic growth in Nigeria only in the long run while positive insignificant in the short run. Causality also runs from stock market development, interest rate, banking sector development and recapitalization to financial development in Nigeria. The policy implication of these findings is that financial development is one of the desired panaceas to achieving both long-run and short-run sustainable economic growth in Nigeria and any policy targeted on financial development is expected to positively affect the level of economic growth in Nigeria. Based on these findings, the study therefore recommends among other things that the government should redirect its policy efforts towards the promotion of an efficient financial system while discouraging the elements of bureaucratic bottlenecks in the system as this will help accelerate the pace of growth of theeconomy.
