An Emperical Analysis of the Impact of Financial Deepening on Aggregate Welfare in Nigeria.

ABSTRACTA general way of evaluating the economic welfare of country is through its household per capita expenditure. Thus, the major purpose for this study is to investigate how the recent financial deepening processes in Nigeria have impacted on aggregate welfare. Private per capita consumption expenditure is used to measure aggregate welfare in this study which serves as a macroeconomic measure of indicators of aggregate welfare. Financial deepening can affect aggregate welfare in various ways and in many outcomes. From the existing literature, the channels of influence through which financial sector deepening affects aggregate welfare are indirectly through growth and directly through increased access to financial services. Financial deepening is represented by two variables, the degree of financial intermediation/development (MS2/GDP) and the ratio of private sector credit to gross domestic product (PSC/GDP). Three modelled equations, with justifications for each, were estimated and analysed. With a time series data spanning from 1988 to 2023, a country specific regression was used.  A dummy variable approach for structural differences was used for the analysis in the first Models after the necessary conditions of non-stationarity and cointegration had been satisfied, while the Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) was used for the analysis of the second and third Models. The empirical findings show that there are structural differences in the level of financial deepening in the country between the pre and post recent financial reform periods in Nigeria, the bank size represented by (DMBA/GDP) and bank branch distribution represented by (NBBT) are the outstanding and significant determinants of financial deepening in Nigeria. Lastly, financial deepening has no direct significant impact on aggregate welfare, but can go through the financial accessibility indicator-bank branch distribution.  The policy implications derive from the findings is that, the country should come up with more policies to improve financial deepening/intermediation and there is need to formulate financial reform policies that will have a proportionate beneficial welfare impact on the poor.