IMPACT OF FINANCIAL DEEPENING ON ECONOMIC GROWTH IN NIGERIA: AUTOREGRESSIVE DISTRIBUTED LAGGED (ARDL) APPROACH
Abbas Abdullahi Marafa Ph. D
Volume 8 Issue 1
Abstract
This paper assessed the impact of financial deepening on economic growth in Nigeria with annual time series data covering the period from 1986 - 2020 and employed the Autoregressive Distributed Lagged (ARDL) bounds test approach to co-integration, and granger causality techniques. The result of the ARDL short-run analysis indicated that the coefficient of error correction term (ECT) is negative and statistically significant at the 5% significance level confirming the existence of a long-run relationship between the variables in the model. The result of both the short-run and long-run analysis indicated that the coefficient of size variables - total bank asset ratio and market capitalization ratio are positive and statistically, while the coefficients of activity variables (economic volatility and stock market liquidity) are negative and statistically significant. The result of the Granger causality test indicates that there is a unidirectional causality running from economic growth to financial deepening variables, thereby lending support to the demand-following hypothesis. The study recommends for regulatory bodies to enhance the operations and activities of the financial sector; effectively expand and improve the credit channels in favor of the real and productive sectors of the economy; and strengthen policies that will improve the institutional and legal framework for stock market operations. Keywords: Financial Deepening, Economic Growth, Cointegration, ARDL, Granger Causality, ECM.
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