PROJECT TOPIC- IMPACT OF FINANCIAL SECTOR ON NIGERIA’S ECONOMIC GROWTH (1980 TO 2013)
This study examined the impact of financial sector on the Nigerian economic growth, between the periods 1980 to 2013. The study, employed export factor design using ordinary least square (OLS) and Vector Error Correction (VEC) techniques of multiple regression method to examine the impact of the financial sector on the Nigerian economic growth, to determine the causality relationship that exists between economic growth and the Nigerian financial sector to investigate there if there is significant seeped of adjustment between financial sector and economic growth in Nigeria. The study also employed Granger causality test to determine the direction of causation of the variables. Equally, Augmented Dickey-Fuller (ADF) and Phillips- Peron (PP) test to determine the stationary of the variables. The research findings revealed.There is significant seeped of adjustment between financial sector and economic growth in Nigeria which stood at 3 percent. CausesRatio of Credit to Private Sector to GDP (CPGDP), Interest Rate (INTR), and Ratio of Liquidity Liabilities to GDP (M2GDP) does granger causes Gross Domestic Product (GDP) and that Gross Domestic Product (GDP) does not granger causes any of the independent variables. Financial sector development does have significant impact on Nigerian economic growth. We therefore recommend that That there is the need for consistent, transparent and fair policy to all the players in the sector, the need to develop viable and responsive financial services for the poor in Nigeria, government should pay off all creditor contractors so they can pay banks and borrow new loans and also restore some of them to good financial health.There is the need for a resilient and strong institutional development of the sector, a strong emphasis on fund mobilization in order to bring help to the low income people to increase and stabilize their income and assets, the need to evolve an investment friendly interest rate regime supportive of the growth objective of the government.
1.1 Background to the Study
The financial sector of any economy in the world plays a vital role in the development and growth of the economy. The development of this sector determines how it will be able to effectively and efficiently discharge its major role of mobilizing fund from the surplus sector to the deficit sector of the economy. This sector has helped in facilitating the business transactions and economic development (Aderibigbe 2004).
A well-developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction and monitoring costs. If a financial system is well developed, it will enhance investment by identifying and funding good business opportunities, mobilizes savings, enables the trading, hedging and diversification of risk and facilitates the exchange of goods and services.
All these result in a more efficient allocation of resources, rapid accumulation of physical and human capital, and faster technological progress, which in turn results in economic growth. Development in the real sector, as noted by Ajayi (1995), influences the speed of growth of the financial sector directly, while the growth of the finance, money and financial institutions influence the real economy.
The economic growth is a gradual and steady change in the long-run which comes about by a general increase in the rate of savings and population (Jhingan 2005). It has also been described as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is measured by the increase in the amount of goods and services produced in a country.
An economy is said to be growing when it increases its productive capacity which later yield more in production of more goods and services (Jhingan 2003). Economic growth is usually brought about by technological innovation and positive external forces. It is the yardstick for raising the standard of living of the people. It also implies reduction of inequalities of income distribution. Oluyemi (1995) regards the financial sector of any economy as an engine of growth that could greatly assist in the promotion of rapid economic transformation.
It can be concluded that no economy can ever develop without an appreciable growth in the financial sector. An efficient financial system is essential for building a sustained economic growth and an open vibrant economic system. Countries with well developed financial institutions tend to grow faster; especially the size of the banking system and the liquidity of the stock markets tend to have strong positive impact on economic growth (Beck and Levine, 2002 in Nnanna, 2004). This work will focus on the understanding and identification of the impact of financial sector on the Nigerian economic growth, from 1980 to 2013.
PROJECT TOPIC- IMPACT OF FINANCIAL SECTOR ON NIGERIA’S ECONOMIC GROWTH (1980 TO 2013)
1.2 Statement of Problem
The Nigerian financial sector, like those of many other less developed countries, was highly regulated leading to financial disintermediation which retarded the growth of the economy. The link between the financial sector and the growth of the economy has been weak. The real sector of the economy, most especially the high priority sectors which are also said to be economic growth drivers are not effectively and efficiently serviced by the financial sector.
The banks are declaring billions of profit but yet the real sector continues to weak thereby reducing the productivity level of the economy. Most of the operators in the productive sector are folding up due to the inability to get loan from the financial institutions or the cost of borrowing was too outrageous. The Nigerian banks have concentrated on short term lending as against the long term investment which should have formed the bedrock of a virile economic transformation.
Since the adoption of the Structural Adjustment Programme (SAP) in 1986, in an attempt to quicken the recovery of the economy from its deteriorating conditions, a great deal of interest has been shown in the activities and development in the financial sector. This is so because the restructuring of this sector was a central component of the SAP reform.
1.3 Research Questions
(1) What is the impact of the financial sector on the Nigerian economic growth?
(2) Is there any causality relationship that exists between economic growth and the Nigerian financial sector?
(3) Is there any significant seeped of adjustment between financial sector and economic growth in Nigeria?
1.4 Objectives of the Study
The broad objective of this study is to empirically investigate the impacts of the Nigerian financial sector on the growth of the economy. The specific objectives are;
(1) To examine the impact of the financial sector on the Nigerian economic growth
(2) To determine the causality relationship that exists between economic growth and the Nigerian financial sector.
(3) To investigate there if there is significant seeped of adjustment between financial sector and economic growth in Nigeria.
The hypotheses of this study are;
- Ho: Financial sector development does not have any impact on Nigerian economic growth.
- Ho: There is no causality relationship that exists between economic growth and the Nigerian financial sector.
- Ho: There is no significant seeped of adjustment between financial sector and economic growth in Nigeria.
1.6 Scope of the Study
This study is limited to the operations of the Nigerian financial sector and the Nigerian economic activities and its growth, from 1980 to 2013 especially its performance since its inception till date and the financial liberalization, global meltdown and its economic impact. This area of study has been chosen due to its relevance to the overall will being of the Nigerian economy since the Nigerian financial sector plays an important role in the Nigerian economic growth. Thus, this study covered the period from 1980 to 2013 observation.
1.7 Significance of the Study
The study of the financial sector and economic growth intend to consider and assess the performance of the link between the two over the years and highlight the challenges the financial sector is facing with globalization/ financial liberalization and global meltdown, considering the current state of its bid to promote rapid growth of the Nigerian economy as to bring itself to recovery as an important emerging stock market.
This study will be significant to business and government in that it is going to show the usefulness of raising funds in the Nigeria financial sector as regard to reduction in risk and involvement of the public in economic development.
This study will also be useful to the Nigeria capital market in that the problem facing them will be highlighted and ways of solving and improving the current roles played by them will be suggested. This work is also intended to add to the further research in that it will create room for further research. Thus, it is expected that this study will be beneficial to the individual investors, businesses and government.