Nexus between Financial intermediation and Economic Growth: Evidence from Nigeria

Abstract

With an Autoregressive Distributed Lag (ARDL) model, this study examined how financial intermediation affects Nigeria's economic growth from 1981 to 2022. The Central Bank of Nigeria Statistical Bulletin and World Bank Indicators provided annual time-series data. We examined how private sector credit (CPS), money supply (MSY), and lending interest rate (LIR) affect real GDP growth. Descriptive statistics reveal the data is significantly different. The average RGDPG, CPS, MS, and LIR are 0.958810, 9406.887, 15007.37, and 17.31613 percent. RGDPGR, CPS, MS, and LIR have standard deviation coefficients of 5.457501, 6828.512, 12710.87, and.673507, respectively. The limits cointegration test (F-statistic = 69.047, p < 0.05) indicates long-term relationship between variables. Long-run ARDL estimates show that CPS positively affects RGDPGR (coefficient = 1.332, p = 0.0485). However, MSY (-8.056, p = 0.6966) and LIR (-2.847, p = 0.6586) exhibit unfavorable but not significant effects. Short-term dynamics demonstrate that MSY has both positive and negative effects, with lagged MSY (-0.168, p = 0.0032) affecting growth. The study found that private credit boosts the economy while high interest rates and money supply impede it. The study's conclusion is that more credit from the private sector helps the economy grow, while high interest rates and too much money in circulation slow it down. Some policy suggestions made are to encourage private enterprises to acquire financing, make sound monetary policy
reforms, and diversify the economy to make it more resilient to big economic shocks.