Strengthening linkages of the financial services and real sectors of the Nigerian economy

Abstract

This paper examines the extent to which monetary policy, financial sector credit and capital market activities have impacted on the real sector growth. Six explanatory variables obtained from the Central Bank of Nigeria Statistical Bulletin were used. These include Minimum Rediscount Rate (MRR), Broad Money Supply (MS₂) and Treasury Bills Rate (TBR) used as proxy for monetary policy while Market Capitalization Rate (MCR) and Value of Transaction in the capital market (VOT) are used as proxy for capital market activities. In the same vein, Credit to Private Sector (CPS) is the proxy for financial sector credit. These variables are regressed against the Gross Domestic Product (GDP) which is a proxy for real sector performance. The study adopted multiple regression analysis and ordinary least square estimation technique. The result of the study shows that while there is significant relationship between monetary policy and capital market activities and real sector growth there is no significant relationship between credit to real sector and real sector growth. Based on the above findings, the work concludes that financial services sector has positive and significant effect on real sector growth; however the economy is yet to feel the full impact of the financial sector as a result such financial crimes like misappropriation of funds. In line with the findings of this study, it is recommended that; Credit policies should be consistent for better results; more investment instruments such as derivatives, convertibles, futures, swaps, options should be introduced in the market to boost the value of transactions in the Nigerian Capital Market.

Keywords: Growth, development, financial services, real sector