Acta Universitatis Danubius. Œconomica, Vol. 13, No. 3

Abstract

This study examines the impact of financial development on economic growth in Nigeria
using annual time series data between 1980 and 2014. The study tests for the unit root and cointegration
to determine the time series properties of our variables before using ordinary least square
estimation technique to evaluate the long-run estimates and possible policy inferences. The financial
development indicators are financial deepening, bank deposit liability, private sector credit ratio,
stock market capitalization and interest rate, while economic growth is measured by real gross
domestic product. The results show that all the indicators of financial development except private
sector credit ratio have positive impact on the economic growth in Nigeria. it implies that banking
sector and stock market development played critical role in the output growth of the real sector.
However, the negative impact of private sector credit indicate that provision of credit to investors do
not enhance output due to high interest on loan as reported in the study. Thus, the study suggests that
for the country to experience finance-led growth in Nigeria, the apex bank must ensure that loans are
available to local industrial investors at a low interest rate.