Financial Intermediation and Economic Growth in Nigeria: A Study of the Nexus

The study examined the effects of financial intermediation on economic growth in Nigeria. Annual time series data covering 1970 to 2014 were used to analyze the long run and short run relationships between financial intermediation variables and economic growth using econometric techniques. The results of the unit root tests showed that the variables were integrated at I(0) and I(1). Using bound testing technique for cointegration, a stable long-run relationship was found between the financial intermediation variables and gross domestic product. Error correction coefficient was statistically significant. It was concluded that credit to private sector and savings have positive impacts on economic growth in both short run and long-run. However, money supply has a negative influence on economic growth. The causality tests revealed a bi-directional relationship between inflation and economic growth, while a unidirectional causality moves from savings to economic growth. It is recommended that the Central Bank of Nigeria (CBN) should make sure more credits are channeled to the real sector of the economy for effective production. Financial institutions, either government owned or private, should give more credits to the private sector at bearable interest rates. The Central Bank of Nigeria should ensure that the domestic credits provided by the banking sector are appropriately used; and credit facilities should not be restricted to the large-scale manufacturing industries; but it should also be extended to small and medium scale enterprises.