Evaluation of Long Run Relationship between Financial Development and Economic Performance in Nigeria

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DOI: 10.21522/TIJMG.2015.11.01.Art012

Authors : Chioma Patricia MOGBO

Abstract:

This study aimed to assess the long-term interconnections between Nigeria's economy and financial development indicators, adhering to standards, by analysing the existing relationships between these indicators and Nigeria's economic growth based on current data. Secondary data were obtained from the Central Bank of Nigeria's Statistical Bulletin and the World Bank's Financial Development Indicators Database covering the period from 1994 to 2023. The results of the Auto Regressive Distributed Lag Bound Test conducted on a long-term basis revealed that credit extended to the private sector and the number of active bank accounts per 100,000 adult population were important predictors of Nigeria's gross domestic product in the long run. Nonetheless, the lending-deposit spread, and asset quality ratio did not pass the significance test. Thus, the study determined that of the four explanatory variables analysed, only two—credits to the private sector and the number of bank accounts per 100,000 adults—are significantly relevant in forecasting Nigeria's gross domestic product in the long term, whereas lending-deposit spread, and asset quality ratio are not. Thus, the research advised that the Central Bank of Nigeria should increase the statutory maximum loan-to-deposit ratios for operating banks to facilitate more lending to clients, which, via expected multiplier effects, would accelerate economic growth.

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