Financial Liberalization and Economic Growth in Nigeria (1986-2018)

Authors : ILUGBUSI, Segun. B; AJALA, Rosemary B; AKINDEJOYE, John A; OGUNDELE, Abiodun

Volume/Issue : Volume 5 - 2020, Issue 4 - April

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Several studies have emerged since the work of McKinnon and Shaw (1973) on the relationship between financial liberalization and economic growth. However, there are still dearth of literature in respect to the proxies employed for financial liberalization. As a result, this study investigated the effect of financial liberalization on economic growth in Nigeria covering a period of 33years spanning 1986 to 2018. Adopting McKinnon and Shaw hypothesis as the theoretical framework, economic growth was represented by gross domestic product (GDP), financial liberalization was represented by prime lending rate, saving deposit rate, exchange rate, credit to private sector and ratio of private investment to GDP. Data were sourced from CBN Statistical Bulletin and estimation done using auto regressive distributed lag. The study found that, financial liberalization has long and short run relationship with economic growth. Further findings also showed that prime lending rate had insignificant positive and credit to private sector had significant positive effects on economic growth. On the other hand, savings deposit rate, exchange rate and ratio of private investment to GDP have insignificant negative effects on economic growth. The study concluded that, financial liberalization has significant positive effect on economic growth with overriding effect from credit to private sector. Therefore, the study recommended among others that, government through the Central Bank of Nigeria should review the saving deposit rate upward in order to encourage increase of domestic savings by surplus sector of the economy. More importantly, policies that will encourage private sector investment should be looked into by government so as to further stimulate economic growth in Nigeria.

Keywords : Financial Liberalization, Economic Growth, Credit To Private Sector, Prime Lending Rate.


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