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Financial System Development and Real Sector Performance in Nigeria

Okoye, Lawrence U. and Modebe, Nwanneka J. and Evbuomwan, Grace O. and Ezeji, Felix N. (2016) Financial System Development and Real Sector Performance in Nigeria. Nigerian Journal of Financial Research, 11 (1). pp. 76-84. ISSN 1599-8051

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This paper examines the relationship between financial sector development and real sector performance in Nigeria using data over the period 1986-2014. Owing to the dominant role of the banking sub-sector in the Nigerian financial system, it was adopted as proxy for the financial sector. Exchange rate, national saving rate, interest rate and financial depth were adopted as proxies forfinancial development while ratio of industrial output to GDP was adopted as proxy for real sector performance. Lending rate was adopted as the relevant interest rate for the study. Econometric method of the vector error correction model was used to estimate the magnitude and direction of the impact of the exogenous variables on the endogenous variable as well as the speed of adjustment of the system to short-run disequilibrium. The short-run estimate shows significant negative effect of national saving rate and financ ial deepening on the real sector. There is no evidence of significant effect of exchange rate and lending rate on the performance of the sector during the period of the study. Estimated long-run coefficients show significant negative impact of exchange rate and lending rate on real sector output. There is also evidence of non-significant positive impact of national saving rate and non-significant negative impact of I financing deepening on real sector performance. This result indicates that as exchange rate becomes more volatile during the reform period, output of the real sector is adversely affected. On the other hand, though reforms associated with financial sector development in post-SAP era led to high lending rate, the real sector became more efficient in resource utilization and hence had higher productivity growth. Therefore, the study concludes that development of the financial system has supported real sector in Nigeria through efficiency gains from resource allocation and utilization.

Item Type: Article
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Management
Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Patricia Nwokealisi
Date Deposited: 14 Jun 2018 11:55
Last Modified: 14 Jun 2018 11:55

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