IMPACT OF FINANCIAL INSTITUTIONS ON ECONOMIC GROWTH IN NIGERIA

Ofielo, Peter Naetochukwu (2026) IMPACT OF FINANCIAL INSTITUTIONS ON ECONOMIC GROWTH IN NIGERIA. Other thesis, Godfrey Okoye University, Enugu.

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Abstract

This academic investigation analyzes the way financial institutions influence economic growth of Nigeria for the duration of time from 1990 until 2024 which covers three and a half decades. Because the discussion regarding the connection between finance and expansion remains unsettled among scholars, this academic investigation examines how four financial sector indicators, specifically Domestic Credit to Private Sector (DCPS), Broad Money Supply (M2), Interest Rate Spread (IRS), and Inflation (INF), affects growth of real GDP per capita. Academic theories like Finance-Led Growth (Supply-Leading) Hypothesis, McKinnon Shaw Financial Repression and Deepening Framework, and Schumpeter's Theory of Economic Development provide the foundation for this analysis. The investigation utilized information from World Bank Development Indicators and Central Bank of Nigeria (CBN) Statistical Bulletin while using tools such as descriptive statistics, Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests, Johansen Cointegration technique, Vector Error Correction Model (VECM). Many people believe that unit root results show all five variables reaching stability at first difference, I(1), which makes the use of cointegration analysis necessary for the data. The Johansen cointegration test indicates a single long-run equilibrium relationship among variables, and for this reason, VECM was estimated. It has been observed that a single equilibrium exists despite the evidence being marginal in nature for the study. Long-run VECM estimates show that domestic credit to private sector has a positive, statistically significant impact on economic growth (coefficient = 678.26; t-statistic = 5.38). The interest rate spread also creates a positive and significant effect in the long run (coefficient = 1,344.90; t-statistic = 6.98), which means that banking intermediation margins help the expansion of output in the nation. Many experts claim that broad money supply is linked to economic growth in a negative way (coefficient = −413.29; t-statistic = 6.05), and this result happens because money grows without actual production activity. Inflation shows a positive effect that is not statistically significant for growth (coefficient = 8.28; t-statistic = 0.50). During the short run, no financial sector variable shows a significant impact on economic growth of Nigeria. Error correction term (ECT = −0.0387) was found to have the correct negative sign but economic growth does not return to balance quickly. This value suggests a slow speed of adjustment of about 3.87 percent every year toward the long-run equilibrium. While heteroskedasticity is not found in the model residuals, serial correlation was seen in the tests, so more study might be needed to improve the model refinement in the future years. Results of this study demonstrate that financial institutions have strong long-run effects on economic growth of Nigeria. Credit given to private sector and the efficiency of intermediation are seen as the most powerful ways for this effect to happen in the country. Because of these results, the research suggests that Central Bank of Nigeria should keep its strict monetary policy so that price increases stay low in the economy for the benefit of the nation. The government and banking organizations should increase the amount of money flowing to individuals with low income and working positions through specialized development finance institutions and credit guarantee systems. It is often stated by researchers that the banking industry needs more competition so that the costs of working with banks become lower and more people can get money. Financial institutions must remain the focus of these improvements because financial institutions ensure the economic growth of the country continues. Improving these systems will help Nigeria reach its goals and provide a better future for the citizens who live there.

Item Type:	Thesis (Other)
Subjects:	H Social Sciences > H Social Sciences (General)
Divisions:	Faculty of Management and Social Sciences
Depositing User:	MICHAEL MADUBUKO
Date Deposited:	11 Aug 2026 09:35
Last Modified:	11 Aug 2026 09:35
URI:	http://eprints.gouni.edu.ng/id/eprint/6244

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