The Impact of Financial Development on Economic Growth in Nigeria

ABSTRACT This research examined the impact of financial development on economic growth in Nigeria from 1981 to 2022. The autoregressive distributed lag (ARDL) model was used to analyze annual time series data from secondary sources. This research is based on two analysis (baseline model and disaggregated model); per capita GDP was modeled as dependent variable and financial development index (LNFDX), Oil Rent (LNOR), and capital Stock (LNCS) was modeled as independent variables in the baseline model. Also per capita GDP was modeled as dependent variable and financial market index (LNFMX), financial institution index (LNFIDX), Oil Rent (LNOR), and capital Stock (LNCS) was modeled as the independent variables in the disaggregated model. Augmented Dickey-Fuller was used to assess the series' unit root characteristic. At 5% significance, none of the variables were integrated at an order larger than one. Using the ARDL Bounds Test technique to co-integration, the model's variables were shown to have a long-run connection with economic GDP (economic growth) in Nigeria. The empirical finding shows that financial institution, Human Capital and oil rent has a positive and significant relationship with PGDP (economic growth) in Nigeria while financial market and Capital stock has a negative and insignificant impact on PGDP (economic growth) in Nigeria. Therefore, the study recommends that policy makers should implement positive policies that encourage the flow of investment capital and improve financial inclusion, government should restructure and revive money and capital markets in order to improve financial stability and economic growth and invest in human capital to enable them develop skills and expertise in financial sector management and regulation.