Nexus Between Financial Sector And Sustainable Development In Nigeria: A Principal Component Analysis


  • Alade Ayodeji Ademokoya Kwara State University


economic; social; environmental; sustainability; Nigeria


The financial sector has been recognized in the literature as a potential that could drive sustainable development in the developing nations and Nigeria is no exception. This study examined the link between financial sector and sustainable development in Nigeria. Specifically, study seeks to investigate the effects of the banking, stock market, and the insurance segments on sustainable development in Nigeria. Based on data availability, a time series data from 1986-2015 were obtained. The data for sustainable development-economic development, social development, and environmental quality were aggregated using the principal component analysis (PCA). The aggregated index for sustainable development and the financial sector data were subjected to ARDL-Bounds estimations. Findings reveal that the banking and the stock market subsectors positively and significantly propel sustainable development in Nigeria, while the insurance subsector drives sustainable development in Nigeria only in the short run. Study therefore; recommend policies strengthening these main segments of the financial sector in order to drive sustainable development in Nigeria. This study contributed to knowledge being a forerunner to holistically combine and study the three main pillars of sustainable development in Nigeria. Study also stands out by connecting the financial sector to sustainable development in Nigeria.  


Abu-Bader, S., and Abu-Qarn, A. S. (2008). Financial development and economic growth: The Egyptian experience. Journal of Policy Modeling, Vol. 30, pp.887-898.
Ademokoya, A. A., & Abdullahi, I. B. (2019a). Nexus between financial sector and income distribution in Nigeria. Ilorin Journal of Accounting, Vol. 6(1), pp.93-108.

Ademokoya, A. A., & Abdullahi, I. B. (2019b). Nexus between finance and adjusted net savings in Nigeria. Fountain University Osogbo Journal of Management, Vol. 4(2), pp.22-33.

Agha, M., Robins, N., and Zadek, S. (2018). Aligning the financial system with sustainable development. [Online] (Accessed 13 July 2018)

Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: the role of financial markets. Journal of International Economics, Vol. 64, pp.89-112.

Apergis, N., Filippidis, I., and Economidou, C. (2007). Financial deepening and economic growth linkages: A panel data analysis. Review of World Economics, Vol. 143(1), pp.179-198.

Balago, G. S. (2014). Financial sector development and economic growth in Nigeria: An empirical investigation. International Journal of Finance and Accounting, Vol. 3(4), pp.253-265.

Beck, T., Dermirguc-Kunt, A., & Levine R. (2010). Financial institutions and markets across countries and over time: the updated financial development and structure database. The World Bank Economic Review, Vol. 24(1), pp.77-92.

Beck, T., Levine, R., & Loayza, N. (2000). Finance and the Sources of growth. Journal of Financial Economics, Vol. 58, pp.261-300.

Beck, T. & Webb, I. (2003). Economic demographic and institutional determinants of life insurance consumption across countries. World Bank Economic Review, Vol. 17, pp.51-88.

Bongini, P., Iwanics-Drozdowska, M., Smaga, P., & Witkowski, B. (2017). Financial development and economic growth-empirical review. Sustainability, Vol. 9, pp.2-25.

Brown, R. L., Durbin, J., & Evans, J. M. (1975). Techniques for testing the constancy of regression relations over time. Journal of the Royal Statistical Society, Vol. 37, pp.149-163.

Christopoulos, D. K., & Tsionas, E. G. (2004). Financial development and economic growth: Evidence from panel unit root and cointegration test. Journal of Development Economic, Vol. 73, pp.55-74.

Clarke, R. G., Xu, L. C. & Zou, H. (2006). Finance and income inequality: what do the data tell us?’ Southern Economic Journal, Vol. 72, pp.578-596.
Central Bank of Nigeria (CBN). (2017). The Nigerian financial system at a glance.’ [Online] (Accessed 3 January 2020).
Dabwor, T. D., & Abimiku, A. C. (2016). Poverty incidence in Nigeria: Does financial deepening matter? Journal of Economics and International Finance, Vol. 8(6), pp.56-65.
Dar, J. A., & Asif, M. (2017). Is financial development good for carbon mitigation in India? A regime shift-based cointegration analysis. Carbon Management, Vol. 8(6), pp.435-443.
Dauda, R. O. S., & Makinde, K. O. (2014). Financial sector development and poverty reduction in Nigeria: A vector autoregression analysis. Asian Economic and Financial Review, Vol. 4(8), pp.1040-1061.

European Commission (1997). The role of financial institutions in achieving sustainable development. [Online] (Accessed December, 2019)
Frankel, J. & Rose, A. (2002). An estimate of the effect of common currencies on trade and income. Quarterly Journal of Economics, Vol. 117, pp.437-466.

Ghildiyal, V., Pokhriyal, A. K., & Mohan, A. (2015). Impact of financial deepening on economic growth in Indian perspective: ARDL bound testing approach to cointegration. Asian Development Policy Review, Vol. 3(3), pp.49-60.

Islam, F., Shahbaz M., Ahmed, A. U., & Alam, M. M. (2013). Financial development and energy consumption nexus in Malaysia: A multivariate time series Analysis. Economic Modeling, Vol. 30, pp.435-441.

Jalilian, H., & Kirkpatrick, C. (2002). Financial development and poverty reduction in developing countries. International Journal of Financial Economics, Vol. 7, pp.97-108.

Klapper, L., El-Zoghbi, M., & Hess, J. (2016). Achieving the sustainable development goals: the role of financial inclusion. A Working Paper of the United Nations Secretary General’s Special Advocate for Inclusive Finance for Development (UNSGSA). Washington DC.

Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, Vol. 37, pp.688-726.

Marco, A. (2008). Does insurance market activity promote economic growth? A cross-country study for industrialized and developing countries. Journal of Risk and Insurance, Vol. 75, pp.921-946.

Moghadam, H. E., & Lotfalipour, M. R. (2014). Impact of financial development on the environmental quality in Iran. Chinese Business Review, Vol. 13(9), pp.537-551.

National Bureau of Statistics (2017). Nigeria’s gross domestic product Report.

Ogunlokun, A. D., Akinfolarin, M. O. & Adeleke, K. O. (2018). Financial deepening and sustainable development. International Journal of Innovative Research and Development, Vol 7, pp.16-27.

Ogwumike, F. O., & Salisu, A. A. (2009). Financial development and economic growth in Nigeria. Journal of Monetary and Economic Integration, Vol. 12(2), pp.91-119.

Okeke, R. C., Izueke, E. M. C., & Nzekwe, F. I. (2014). Energy security and sustainable development in Nigeria. Arabian Journal of Business and Management Review, Vol. 4(3), pp.63-72.

Ozturk, I., & Acaravci, A. (2010). C02 emissions, energy consumption, and economic growth in Turkey. Renewable and Sustainable Energy Reviews, Vol. 14(9), pp.3220-3225.

Rajan, R. G., & Zingales, L.(2003). The great reversals: The politics of financial development in the 20th century. Journal of Financial Economics, Vol. 69(1), pp.5-50.

Ridzuan, A., Ismail, N. A. & Hamat, A. C. (2017). Does fdi successfully lead to sustainable development in Singapore? Economies, Vol. 5, pp.1-20.
Ridzuan, A., Ismail, N. A. & Hamat, A. C. (2018). Foreign direct investment and trade openness: do they lead to sustainable development in Malaysia? Journal of Sustainability Science and Management Special Issue 4, pp.79-97.

Sadorsky, P. (2011). Financial development and energy consumption in central and eastern European frontiers economies. Energy Policy, Vol. 39, pp.999-1006.

Shahbaz, M., Loganathan, N., Tiwari, A. K., & Sherafatian-Jahromi, R. (2014). Financial development and income inequality: Is there any financial Kuznets curve in Iran? Social Indicators Research, Vol. 25 (2), pp.357-382.

Solarin, S. A., & Jauhari, D. (2011). Financial development and economic growth: The role of stock markets and banking sector in Nigeria. Journal of Sustainable Development in Africa, Vol. 13(7), pp.96-113.

Sustainable Development Report (2020). Overall Performance of 193 UN member states. [Online] (Accessed 7 June 2020)

Tamazian, A. & Rao, B. (2010). Do economic, financial and institutional developments matter for environmental degradation? Evidence from transitional economies. Energy Economics, Vol. 32, pp.137-145.

Umejiaku, R. I. & Obumneke, E. (2017). Financial sector reform and the growth of Nigerian economy: 1986-2015. Asian Business Research, Vol. 2, pp.31-39

United Nations Environment Programmes Finance Initiative (UNEPFI) (2016). Connecting financial system and sustainable development: Market leadership paper. [Online] (Accessed 13 July 2018)

United Nations (2015). Financing for development. Paper presented at the 3rd International Conference on Sustainable Development Financing. 13-16 July 2015. Addis Ababa, Ethiopia.

Volz, U. (2018). Fostering green finance for sustainable development in Asia. Asian Development Bank Institute Working Paper Series No. 814.

World Bank (2006). Where is the wealth of nations? Washington DC: World Bank

World Bank Group (2017a). Nigeria’s bi- annual economic update: fragile recovery. Washington DC: World Bank.

World Bank (2017b). The World Bank in Nigeria: overview. Washington DC: World Bank.






Economic Development, Technological Change, and Growth