ABSTRACT
The purpose of this study is to examine the effect of the Financial Sector development on the economic performance in Nigeria. The Time series data from 1986-2015 was imputed into the regression equation using some econometric techniques like Augmented Dickey Fuller(ADF) test, Johansen Co-integration test, Ordinary Least Square Regression. The result shows that Financial sector development variables: market capitalization, credit to private sector, Inflation, trade openness affect positively the Economic performance variable– Gross Domestic Product. This result is in consonant with some earlier studies reviewed in the literature that found financial sector development variables to affect positively gross domestic product.
CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
The relationship between economic growth and financial development has been the subject of both theoretical and empirical analysis in economic literature for a long period of time. Although there are numerous studies examining this relationship, there is no consensus on the effect of financial development on economic performance. A number of theories indicate that financial development leads to economic growth. Studies that support this view include those of Habibullah and End (2006); Galindo (2007), Ang (2008); Giuliano and Ruiz-Arranz(2009) and Nkoro and Uko (2013). These studies maintain that a well-structured financial sector creates strong incentives for investment and also fosters trade and business linkages and technological diffusion. This is mainly through mobilizing savings for productive investment which thus promotes economic growth. Another school of thought believes that economic performance translated to growth creates demand for financial services and therefore economic growth precedes financial development. Studies that advocate this view include Sunde (2013), Odhiambo (2008), etc. Another strand holds that financial advancement plays a minimal role, if any, on economic performance in relation to growth (Lucas, 1988) and Adusei (2012). However, in the recent past, there has been empirical evidence that there exist a bi-directional relationship between economic performance and financial development Fowowe (2010), Rachdi and Mbarek (2011).
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