Financial Openness (A Dejure And Defacto Measure) And Economic Growth In Nigeria

Abstract

Economic theory says that financial openness should foster economic growth. In view of this study, this study examined the impact of financial openness on economic growth in Nigeria using annual data for the period 1981 to 2023. The use of the Autoregressive Distributed Lag (ARDL) bounds testing approach was used. The study made use of De jure and the De facto as a measure of financial openness and other variables like Foreign Direct Investment, Gross Fixed Capita Formation, Real Interest Rate, Real Effective Exchange Change Rate as the independent variables while Real Gross Domestic Product was employed as the dependent variable. The result of the study show that a 10 per cent increase in financial openness De Jure measure will lead to a 0.16 percent increase in real gross domestic product (RGDP). Also, the value of the coefficients of (0.006583) implies that an increase in balance of payment by 10 per cent will result to an increase in real gross domestic product by 0.07 per cent. The study found out that the variables of financial openness variables are both positively and negatively signed but statistically significant. The study concluded that changes in financial openness affect economic growth. The study shows that a positive relationship exists between market capitalization, De jure financial openness, and economic growth. Based on the results obtained, the study recommended that effective policies should be put in place to control the interest and exchange rate. This is vital because management of financial openness and all international capital flows that will contribute positively to the growth of the economy can only be accomplished by a stable interest and exchange rate. The study further recommend that banks should be encouraged to extend more credit to private sector. But there is a serious need for discipline and discretion in credit allocation by the banks.