Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach

Abstract

This paper investigates the relationship between financial depth, macroeconomic volatility, and economic growth in Nigeria using a general model of error correction and causality model with time series sourced from Central Bank of Nigeria Bulletin 2012. The result shows a long-run impact of financial deepening on exchange rate volatility and economic growth while the error correction term indicates that there is no long-run impact of financial depth on growth volatility. On one hand, there is no short run impact of financial depth on exchange rate and growth volatility though most of the financial deepening variables show signs of dampening the volatility of exchange rate and growth. On the other hand, the error correction result suggests that there is a long-run and short-run impact of financial deepening on economic growth. The causality result showed no causality between financial deepening variable, economic growth, and growth volatility but a unidirectional causality between exchange rate volatility, stock traded, stock market capitalization, and broad money. We therefore, suggest that government and policy makers to embrace policies that will deepen financial services in Nigeria.

External shocks and macroeconomic volatility in Nigeria: does financial development moderate the effect?

“…The authors employ ARDL procedure and find that FD aid trade led to shock in Nigeria, thus intensifying output volatility. Ogbuagu and Ewubare (2017) examine the link between financial depth, macroeconomic volatility and economic growth. The authors use exchange rate volatility as a proxy for macroeconomic volatility.…”