article · Journal of Law and Sustainable Development
An analysis of Nigerian economic data spanning from 1987 to 2020 investigates how financial intermediation influences economic growth, measured through gross domestic product and per capita income. Using autoregressive distributed lag modelling, the evaluation focuses on metrics including private sector credit, broad money supply, lending rates, market capitalisation, and share trading volumes. In the long run, both gross domestic product and per capita income respond positively to increases in credit extended to the private sector, equity market capitalisation, and the total value of traded shares. Conversely, broad money supply and lending rates exert a statistically significant negative influence across both measures of growth. The findings also demonstrate a rapid speed of adjustment in the short term, leading to recommendations for bank management to enhance the efficient allocation of financial services across the wider economy.
Understanding the relationship between financial activities and national development guides decisions on how capital is allocated. By showing that equity markets and private lending foster growth, while higher lending rates and excessive broad money supply hinder it, these findings help financial institutions and regulators balance interest rates and market liquidity to support broader economic wellbeing.
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Objective: This study examined the impact of financial intermediation on economic growth in Nigeria. The study employed secondary data obtained from the Central Bank of Nigeria statistical bulletin from year 1987 to 2020. Method: The independent variable – Financial intermediation was proxied by credit to private sector, broad money supply, lending rate, market capitalization and total value of shares traded while the dependent variable – Economic growth was proxied by gross domestic product and per capital income. Autoregressive Distributed Lag (ARDL)/Bound testing to co-integration was used to establish the short run and long-run dynamic impact of financial intermediary on economic growth in Nigeria. Results: The study revealed a high speed of adjustment in the short run (Cointeq(-1) = (-0.9995; -0.981099) for the two models respectively. Similarly, for the GDP model, the study revealed that in the long run, credit to private sector (β1 = 0.0121); market capitalization (β4 = 0.05423) and total volume of shares traded (β5 = 1.62669) all established positively significant impact on economic growth in Nigeria at 5% significance level except broad money supply (β2 = - 0.00511) and lending rates (β3 = - 0.14194) which established negatively significant impact on economic growth in Nigeria at 5% significance level. However, for the PCI model, the study revealed that in the long run, credit to private sector (β1 = 0.002216); market capitalization (β4 = 0.095095) and total volume of shares traded (β5 = 1.915620) all established positively significant impact on economic growth in Nigeria at 5% significance level except broad money supply (β2 = -0.008476) and lending rates (β3 = -0.313843) which established negatively significant impact on economic growth in Nigeria at 5% significance level. Conclusion: The study therefore, recommends that management of banks should be encouraged to pursue policies that will deepen the efficient allocation of financial services for economic growth in Nigeria.
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DOI: 10.55908/sdgs.v12i6.3797
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