Financial Deepening Indicators and Economic Growth in Nigeria: A Causality and Impact Analysis

Abstract

This paper is a causality and impact study on financial deepening and economic growth in Nigeria for a-33-year period covering 1981 – 2013. The study used the Phillips-Peron test for unit root to ascertain whether the variables are stationary or not. The VEC residual normality test and the Histogram-Normality test were utilized in other to determine if the data set were normally             distributed. Test for a long run relationship was conducted with the aid of the Johansen cointegration test. The Error Correction Model as well as the Granger causality test was also employed. The findings revealed that there is a long run relationship between economic growth, broad money supply and private sector credit, with high speed of adjustment towards long run equilibrium. The results also revealed that while broad money has positive and non-significant impact on economic growth, private sector credit has negative and non significant impact on growth. The                             Granger causality test results showed that neither broad money supply nor private sector credit is granger causal for economic growth and vice versa. The study therefore recommends that private sector friendly policies should be implemented to ensure that investors do not only have access to credit but such credit should be at affordable cost, i.e. at a relatively low interest rate. Monetary and fiscal policies should be harmonized in other to achieve the economic goal of sustained growth and stability.