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

Abstract

This study investigates the effect of financial deepening on economic growth inNigeria. 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 usingthe Autoregressive Distributed Lag (ARDL) approach. In contrast, the Breusch-Pagan-Godfreytest for heteroskedasticity, Correlogram of Residuals Squared, Cusum test and HistogramNormality test were also used for the diagnostic test. The outcome of the long-run analysisindicates that the Ratio of broad money to GDP and Market capitalization have a positive andsignificant effect on the Gross Domestic Product, while Credit to the private sector to GDP hasan inverse and significant impact on the Gross Domestic Product. Conversely, the Liquidityratio of commercial banks has a negative and no significant effect on the Gross DomesticProduct. Thus, the study finds that financial deepening significantly impacts Nigeria’seconomic growth. Hence, the study concludes that financial deepening has a significant effecton economic growth in Nigeria. Finally, the study suggests that Banks should extend morecredit facilities to sectors of the economy that are production-driven