Abstract

This study examines empirically the short-run and long-run relationships between financial system development and economic growth in Nigeria. The study adopted a multivariate OLS analysis for the estimation process, cointegration analysis for long-run equilibrium relationship and the associated error correction model to determine the short-run impact of the variables. The Granger causality test was used to determine the direction of causality among the variables. The findings of the study were that financial development (measured by banking system and stock market development) positively influenced economic growth in Nigeria; that causality runs from finance to growth in the finance-growth nexus. We therefore recommend that the ongoing reforms in the banking system and capital market should be intensified so as to boost the development of these segments of the financial system and by that increase their role in economic growth. Also the regulation and supervision of the financial system should be strengthened as it plays a great role in determining both its stability and the extent of the services provided.

Keywords:

Co-integration analysis, economic growth, financial systems, granger causality test, unit root test JEL,

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