IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v5y2017i1p4-d88511.html
   My bibliography  Save this article

Financial Deepening and Economic Growth Nexus in Nigeria: Supply-Leading or Demand-Following?

Author

Listed:
  • Tari Moses Karimo

    (Department of Economics, Niger Delta University, Wilberforce Island, P.O. Box 1464, Yenagoa 560001, Bayelsa State, Nigeria)

  • Oliver Ejike Ogbonna

    (Department of Economics, Faculty of the Social Sciences, University of Nigeria, Nsukka 410001, Enugu State, Nigeria)

Abstract

This paper examined the direction of causality between financial deepening and economic growth in Nigeria for the period 1970–2013. The study adopted the Toda–Yamamoto augmented Granger causality test and results showed that the growth-financial deepening nexus in Nigeria follows the supply-leading hypothesis. This means that it is financial deepening that leads to growth and not growth leading financial deepening. Among other things, the study recommended that policy efforts should be geared towards removing obstacles that undermine the growth of credit to the private sector, and must restore investors’ confidence in the stock market operations.

Suggested Citation

  • Tari Moses Karimo & Oliver Ejike Ogbonna, 2017. "Financial Deepening and Economic Growth Nexus in Nigeria: Supply-Leading or Demand-Following?," Economies, MDPI, vol. 5(1), pages 1-18, January.
    • Handle: RePEc:gam:jecomi:v:5:y:2017:i:1:p:4-:d:88511
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/5/1/4/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/5/1/4/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    2. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Calderon, Cesar & Liu, Lin, 2003. "The direction of causality between financial development and economic growth," Journal of Development Economics, Elsevier, vol. 72(1), pages 321-334, October.
    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    6. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," The World Bank Economic Review, World Bank, vol. 10(2), pages 323-339, May.
    7. Muhammad Arshad Khan, 2008. "Financial Development and Economic Growth in Pakistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 9(2), pages 375-391, September.
    8. Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 333-346, January.
    9. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    10. Nikitas Pittis, 1999. "Efficient Estimation Of Cointegrating Vectors and Testing for Causality in Vector Autoregressions," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 1-35, February.
    11. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    12. A Enisan Akinlo & O Olufisayo Akinlo, 2007. "Financial Development, Money, Public Expenditure and National Income in Nigeria," Journal of Social and Economic Development, Institute for Social and Economic Change, Bangalore, vol. 9(1), pages 1-24, January-J.
    13. Taofik M. Ibrahim & Mohammed I. Shuaibu, 2013. "Financial Development: A Fillip or Impediment to Nigeria's Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 3(2), pages 305-318.
    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    15. Godfrey Ndlovu, 2013. "Financial Sector Development and Economic Growth: Evidence from Zimbabwe," International Journal of Economics and Financial Issues, Econjournals, vol. 3(2), pages 435-446.
    16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. AJAYI Ibidolapo Ezekie & EDEWUSI Damilola Gabrie & ADELEKE Kareem Olalekan, 2021. "The Impact of a Global Crisis on the Economic Sustainability of Nigeria: The Case of Covid-19 Pandemic," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(07), pages 738-745, July.
    2. Liu, Haiyun & Islam, Mollah Aminul & Khan, Muhammad Asif & Hossain, Md Ismail & Pervaiz, Khansa, 2020. "Does financial deepening attract foreign direct investment? Fresh evidence from panel threshold analysis," Research in International Business and Finance, Elsevier, vol. 53(C).
    3. Gbenga F. BABARINDE, 2020. "Growth Effects Of Foreign Direct Investment And Financial Deepening In Nigeria (1981-2018)," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(4), pages 49-67, December.
    4. Sin-Yu Ho, 2018. "Determinants of economic growth in Hong Kong: The role of stock market development," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1510718-151, January.
    5. Kayode David Kolawole & Micheal Adebayo Ajayi & Abdulkareem Alhassan & Festus Victor Bekun & Gizem Uzuner, 2022. "Sustainable Energy Supply, Finance, and Domestic Investment Nexus in West Africa," Sustainability, MDPI, vol. 14(19), pages 1-11, September.
    6. Victoria Okafor & Ebenezer Bowale & Ademola Onabote & Adedeji Afolabi & Jeremiah Ejemeyovwi, 2021. "Financial Deepening and Economic Growth in Nigeria: A Johannsen and Error Correction Model Techniques," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(2), pages 263-273, April.
    7. Hamisu S. Ali & Solomon P. Nathaniel & Gizem Uzuner & Festus V. Bekun & Samuel A. Sarkodie, 2020. "Trivariate Modelling of the Nexus between Electricity Consumption, Urbanization and Economic Growth in Nigeria: Fresh Insights from Maki Cointegration and Causality Tests," Research Africa Network Working Papers 20/010, Research Africa Network (RAN).
    8. Vinay Kumar Singh & Salah Abosedra & Ali Fakih & Sajal Ghosh & Kakali Kanjilal, 2023. "Economic volatility and financial deepening in Sub-Saharan Africa: evidence from panel cointegration with cross-sectional heterogeneity and endogenous structural breaks," Empirical Economics, Springer, vol. 65(5), pages 2013-2038, November.
    9. Sajida Sari & Shochrul Rohmatul Ajija & Wasiaturrahma Wasiaturrahma & Raja Adzrin Raja Ahmad, 2022. "The Efficiency of Indonesian Commercial Banks: Does the Banking Industry Competition Matter?," Sustainability, MDPI, vol. 14(17), pages 1-16, September.
    10. AJAYI Ibidolapo Ezekie & EDEWUSI Damilola Gabrie & ADELEKE Kareem Olalekan, 2021. "The Impact of a Global Crisis on the Economic Sustainability of Nigeria: The Case of Covid-19 Pandemic," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(7), pages 738-745, July.
    11. Kizito Uyi Ehigiamusoe & Hooi Hooi Lean, 2019. "Influence of Real Exchange Rate on the Finance-Growth Nexus in the West African Region," Economies, MDPI, vol. 7(1), pages 1-21, March.
    12. Klara Zalesakova, 2022. "Stock market development as a leading indicator of future economic growth in the BRICS countries," MENDELU Working Papers in Business and Economics 2022-82, Mendel University in Brno, Faculty of Business and Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manuel Ennes Ferreira & Jelson Serafim & João Dias, 2022. "Finance-Growth Nexus: Evidence from Angola," Working Papers REM 2022/0227, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Okuyan Hasan Aydın, 2022. "The Nexus of Financial Development and Economic Growth Across Developing Economies," South East European Journal of Economics and Business, Sciendo, vol. 17(1), pages 125-140, June.
    3. Hassan, M. Kabir & Sanchez, Benito & Yu, Jung-Suk, 2011. "Financial development and economic growth: New evidence from panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 88-104, February.
    4. Nyasha Sheilla & Odhiambo Nicholas M., 2017. "Bank Versus Stock Market Development in Brazil: An ARDL Bounds Testing Approach," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 7-21, April.
    5. Banu Demirhan, 2016. "Financial Development and Investment Amount Nexus: A Case Study of Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(3), pages 127-134, March.
    6. Phouphet Kyophilavong & Gazi Salah Uddin & Muhammad Shahbaz, 2016. "The Nexus between Financial Development and Economic Growth in Lao PDR," Global Business Review, International Management Institute, vol. 17(2), pages 303-317, April.
    7. Thorsten Beck, 2009. "The Econometrics of Finance and Growth," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 25, pages 1180-1209, Palgrave Macmillan.
    8. Helmi Hamdi & Rashid Sbia & Bedri Kamil Onur Tas, 2014. "Financial Deepening and Economic Growth in Gulf Cooperation Council Countries," International Economic Journal, Taylor & Francis Journals, vol. 28(3), pages 459-473, September.
    9. Selim Yildirim & Bilge Kagan zdemir & Burhan Dogan, 2013. "Financial Development and Economic Growth Nexus in Emerging European Economies: New Evidence from Asymmetric Causality," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 710-722.
    10. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2015. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 452-471, September.
    11. Rudra P. Pradhan & Mak B. Arvin & Neville R. Norman & John H. Hall, 2014. "The dynamics of banking sector and stock market maturity and the performance of Asian economies," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 30(1), pages 16-44, May.
    12. Jagadish Prasad Bist & Nar Bahadur Bista, 2018. "Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks," Vikalpa: The Journal for Decision Makers, , vol. 43(4), pages 236-249, December.
    13. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
    14. M. Kabir Hassan & Benito Sanchez & Jung-Suk Yu, 2011. "Financial Development and Economic Growth in the Organization of Islamic Conference Countries التطور المالي والنمو الاقتصادي في دول منظمة المؤتمر الإسلامي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 24(1), pages 145-172, January.
    15. Giuseppina Testa, 2005. "Economic Growth and Finance. A cointegration analysis in US and Japan," Quaderni DSEMS 22-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    16. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    17. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    18. Vassiki Sanogo & Richard K. Moussa, 2017. "Financial Reforms, Financial Development, and Economic Growth in the Ivory Coast," Economies, MDPI, vol. 5(1), pages 1-23, February.
    19. repec:ipg:wpaper:2014-485 is not listed on IDEAS
    20. Zahid Mehmood Akhtar & Dr. Faid Gul & Dr. Fauzia Mubarak, 2024. "Economic Growth and Financial Intermediation Nexus in Pakistan: An ARDL Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 542-551.
    21. Madhu Sehrawat & A. K. Giri, 2017. "Financial Structure, Interest Rate, Trade Openness and Growth: Time Series Analysis of Indian Economy," Global Business Review, International Management Institute, vol. 18(5), pages 1278-1290, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:5:y:2017:i:1:p:4-:d:88511. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.