Financial Sector Development and the Nigeria Economy

ABSTRACT This study empirically examined the relationship between financial sector development and the Nigerian economy using annual time series data from 1993 to 2022. The variables adopted for measuring financial sector development include; financial deepening, monetary policy rate, stock market capitalization and all share index, whereas, gross domestic product was used to measure the Nigerian economy. Time series data used for the study were obtained mainly from Central Bank of Nigeria (CBN) Statistical Bulletin 2022 edition. The result of the study established that a noteworthy negative relationship emerges between financial deepening and gross domestic product, signifying that an increase in financial deepening adversely affects the Nigerian economy. Secondly, the examination of the monetary policy rate displays a negative but inconsequential association with gross domestic product. This implies that changes in the monetary policy rate have an insignificant negative impact on Nigeria's economy. On a different note, a positive relationship was identified between stock market capitalization and gross domestic product. This suggests that the expansion of stock market capitalization significantly bolsters the Nigerian economy. Additionally, the findings unveil a substantial positive relationship between the all-share index and gross domestic product, highlighting the constructive impact of the all-share index on the Nigerian economy. The study further recommends that the growth of the money and capital markets be prioritized by macroeconomic managers in Nigeria to improve the level of economic growth. The study further recommends that there exists a critical necessity to introduce focused policy interventions aimed at narrowing the gap between the formal and informal sectors in Nigeria.