FINANCIAL DEEPENING AND ECONOMIC GROWTH IN NIGERIA: AN AUTOREGRESSIVE DISTRIBUTED LAG APPROACH

Abstract

This study investigates the effect of financial deepening on economic growth in
Nigeria. The annual times series data from 1991 to 2022 were used for the study, while the ex-
post facto research design was adopted for the study. The Augmented Dickey Fuller (ADF)
and the Phillipps-Perron methods were used to test for unit roots. The data were analyzed using
the Autoregressive Distributed Lag (ARDL) approach. In contrast, the Breusch-Pagan-Godfrey
test for heteroskedasticity, Correlogram of Residuals Squared, Cusum test and Histogram
Normality test were also used for the diagnostic test. The outcome of the long-run analysis
indicates that the Ratio of broad money to GDP and Market capitalization have a positive and
significant effect on the Gross Domestic Product, while Credit to the private sector to GDP has
an inverse and significant impact on the Gross Domestic Product. Conversely, the Liquidity
ratio of commercial banks has a negative and no significant effect on the Gross Domestic
Product. Thus, the study finds that financial deepening significantly impacts Nigeria’s
economic growth. Hence, the study concludes that financial deepening has a significant effect
on economic growth in Nigeria. Finally, the study suggests that Banks should extend more
credit facilities to sectors of the economy that are production-driven