Adekunle R. ONAOLAPO, Kehinde G. AJOSE


The banking sector of a country provides the catalyst, through financial intermediation, for productive activities to ensure economic growth and development. The global financial crisis which manifested in form of liquidity and credit crunch has affected Nigeria financial system and economic growth. This study empirically examines the relationship between banking sector development and economic growth in Nigeria from 1981to2016. Secondary data used in this study were sourced from the publication of the Central Bank of Nigeria Statistical Bulletin and World Development Indicators from 1981to 2016. The Ex post factor research design was adopted. The key banking sector variables for which the data were sourced included Domestic Credit, Money Supply, Liquid Liability. Real Gross Domestic Product was used to proxy economic growth for the periods of study.   Augmented Dickey Fuller (ADF) and Phillips Perron (PP) test of unit root were conducted to affirm the stationery of the series and guard against spurious regression outcomes from the times series data. The Bound co-integration test was also conducted to affirm the existence of co-integration among the variables in the long run while autoregressive distribution Lag model (ARDLM) was adopted to examine the short and long run effects of banking sector development on economic growth. Results showed that, in the long run, Money supply and Liquid liability recorded positive impact on RGDP while Domestic credit influenced RGDP negatively. In short run, the result revealed that Domestic credit and Money supply had positive impact while the impact of liquid liability was not established. The study recommends that government should formulate policies that will encourage banks to lend more to the productive sector (real sector). This will stimulate economic growth in Nigeria.

Full Text: