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Financial Deepening and Domestic Investment in Nigeria

Author

Listed:
  • Frances N. Obafemi
  • Chukwuedo S. Oburota
  • Chukwunonso V. Amoke

Abstract

The study examined the relationship between financial deepening and investment in Nigeria. Secondary data spanning from 1970 to 2013 was used for the empirical analysis. It adopted the Gregor-Hansen Endogenous structural break methodology and the supply-leading hypothesis in building the model. The study also employed the Unit Root Test, Co Integration Test and Granger Causality Test. It discovered a unidirectional causality, running from financial deepening to investment. It also found that the financial deepening has a statistically significant impact on domestic investment. Based on these empirical findings, the study recommended increased integration of the credit and thrift societies, cooperatives, rural saving organization etc into the mainstream formal financial sector in order to shore up the mobilization of savings for investment. It also recommended subsidizing the operational cost of financial intermediation so as to narrow the gap in interest rate spread. These steps when judiciously executed will ultimately promote financial deepening by easing the rigidities involved in mobilizing and accessing of credit for investment purpose.

Suggested Citation

  • Frances N. Obafemi & Chukwuedo S. Oburota & Chukwunonso V. Amoke, 2016. "Financial Deepening and Domestic Investment in Nigeria," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 40-54, March.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:3:p:40-54
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    References listed on IDEAS

    as
    1. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
    2. Alif Darrat, 1999. "Are Financial Deepening and Economic Growth Causally Related? Another Look at the Evidence," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 19-35.
    3. Oya Pinar Ardic & H. Evren Damar, 2006. "Financial Sector Deepening and Economic Growth: Evidence From Turkey," Working Papers 2006/19, Bogazici University, Department of Economics.
    4. Mr. Pablo F Druck & Mr. Alexander Plekhanov & Mr. Mario Dehesa, 2007. "Relative Price Stability, Creditor Rights, and Financial Deepening," IMF Working Papers 2007/139, International Monetary Fund.
    5. Deren Unalmis, 2002. "The Causality Between Financial Development and Economic Growth : The Case of Turkey," Working Papers 0203, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Okuma, N. Camillus & Nwoko, Cyprain N.J & Ubogu Festus Elugom & Asomba Sebastine Uche, 2019. "Causality between Financial Inclusion and Agricultural Sector Output in Nigeria," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 9(4), pages 304-317, April.
    2. Peter Nderitu GITHAIGA, 2019. "Foreign Remittances, Private Sector Investment and Banking Sector Development," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 3(2), pages 85-112.

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    More about this item

    Keywords

    financial deepening; domestic investment;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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