A Causality Analysis of Financial Deepening and Performance of Nigerian Economy (1990-2013)

Abstract

The study examined the causal relationship between financial deepening and performance of Nigerian economy using time series data (1990-2013). Secondary data was used and collected from the central bank of Nigeria statistical bulletin and national bureau of statistics. Hypotheses were formulated and tested using a causality econometrics model and the study reveals that the variables do not have unit roots. There is also a long-run equilibrium relationship between financial deepening and performance of Nigerian economy and the result confirms that about 70% short-run adjustment speed from long-run disequilibrium. The study revealed that there is a causal relationship between financial deepening and performance of Nigerian economy. The coefficient of determination indicated that about 63% of the variations in performance of Nigerian economy can be explained by changes in financial deepening variables. The study therefore recommended that Government policies should be directed towards manipulating the money supply in such a way that will facilitate economic growth and development. The monetary authority CBN should implement policies that will increase the flow of funds and improves the capacity of banks to extend credit to the economy. Security and Exchange Commission should be diligent in the supervision of the operators in the capital market to ensure that efficiency and discipline is restored in the market, so as to increase investors’ confidence, expand liquidity, mobilize savings and enhances capital accumulation.

Keywords: Causality, Analysis, Financial Deepening, Performance, Nigerian, Economy