FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA: A DYNAMIC MULTIPLE REGRESSION APPROACH

Economics and Finance

The debate on the direction of the relationship between financial development and economic growth has continued to attract scholarly attention despite having a long history. This study employs a dynamic multiple regression framework to examine the impact of financial sector development on economic growth in Nigeria using quarterly time series data spanning from 1981Q1 to 2022Q4. Financial sector development is measured in terms of domestic credit of private sector, net credit to government, and stock market capitalization, while economic degrowth is measured by real GDP. We find that none of the financial development measures exert a significant effect on economic growth. However, while both domestic credit to private sector and net credit to government have negative coefficients, stock market capitalization has a positive coefficient. Hence, consistent with the finance-neutrality hypothesis, we conclude that both financial institutions and financial markets have so far been unable to effectively channel financial resources into productive real economic activities for growth and development

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