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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. 85-94. ISSN 1599-8051

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This paper examines the relationship between financial sector development and real sector pe1jormance in Nigeria using d{lta 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 sOl'ing rate, interest rate and financial depth were adopted as proxies for financial qevelopmentwhile ratio of industrial output to GDP 11~s 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 ~orrection mode/was used to estimate the magnitude and direction of the impact of the exogenous mriables 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 financial 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·11m 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 sat·ing rate and non-significan/ negatire impact of financing deepening on real sector pe1jormance. This result indicates that as exchangot rate becomes more volatile during the reform period, output of the real sector is adt·ersely 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 utili:ation 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 utili=ation.

Item Type: Article
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Patricia Nwokealisi
Date Deposited: 22 Jun 2017 10:30
Last Modified: 27 Jun 2018 09:26

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