Financial Intermediation and Economic Growth in Nigeria: A Co-Integration Analysis

Abstract :

This study examined the effect of financial intermediation on economic growth in Nigeria. The study period covered between 1980 and 2013. The introduction of financial intermediation by financial intermediaries in Nigeria was necessary due to the challenges, issues and limitations of the direct financing system. The unit root test was carried out using the Augmented Dickey-fuller and Philip-Perron tests in order to confirm the stationarity of the data, then the Johansen co-integration test was used to estimate the long run relationship between the dependent and independent variables in this study. The Vector Error Correction Model (VECM) test was conducted. The result showed that financial intermediation has a long-run relationship with economic growth in Nigeria. Therefore, the study recommended that the regulatory authorities of financial intermediaries such as the Central Bank of Nigeria (CBN), having obtained knowledge from this research work on the impact of financial intermediation on economic growth should encourage and enhance the activities of financial intermediaries. This could be done by reducing the level of the cash-reserve ratio in order to make more funds available for credits to the private sector of the economy.