The effects of financial development and trade openness on Nigeria‘s dynamic growth

Abstract

This study attempts to investigate the short and long-run cointegration with the causal nexus between financial developments, trade and output growth in Nigeria. The financial instability index was generated using the residual based analysis to account for the effect of financial instability on growth. To examine the cointegration effects, the study used Autoregressive Distributed Lag (ARDL) model. The non-Granger causality analysis was also employed to determine the direction of causality between the variables. We found that financial instability retards growth significantly while financial liberalization indicates positive impact, but insignificant effect on growth. The study concluded that there is a long-run nexus between financial development and economic growth in Nigeria. We recommend that proactive measures need to be established to sustain economic growth in the country through enhancing productivity level, encouraging savings culture and economizing resources to promote capital accumulation.

Impact of Financial Development, Financial Liberalization and Economic Growth on Financial Instability: Evidence from Panel Data

“…The same situation was observed in the studies conducted on economic growth in relationship with financial instability. Few studies examined the relationship between financial instability and economic growth (Danlami et al, 2018. Jayakumar et al, 2018, Bouheni and Hasnaoui, 2017, Creel et al, 2015Klomp and Haan, 2009).…”

“…These studies found a mixed relationship between economic growth and financial instability. Few studies suggest a negative relationship between economic growth and financial instability (Guerineau and Leon, 2019; Danlami et al, 2018;Batuo et al, 2018). This indicates that the increase in the economy's growth promotes stability of the financial sector and a decline in instability.…”

“…Through financial development indicators, Loayza and Ranciere (2005) and Kpodar (2006, 2011) measure financial instability. However, we used method of Kpodar (2006, 2011), which was also used by Danlami et al (2018). They used absolute values of residuals of financial development variables as a measure of financial instability.…”

Trade, Financial Liberalisation and Current Account Balance in Nigeria

“…Hence, this study. While the impact of trade and financial liberalisation on growth and macroeconomic variables has been extensively researched in Nigeria (Akpan, 2004;Kaita, 2015;Saifullahi and Tanimu, 2015;Danlami et al, 2018;Aigheiyisi and Isikhuemen, 2018;Apanisile and Okunlola, 2020;Aremo and Arambada, 2021;among others), little attention has been paid to unravel the impact of trade and financial liberalisation on current account balance. Several studies looked at macroeconomic and institutional factors, monetary policy, fiscal policy shock, and adjustment policy as determinants of current account (Longe, Muhammad, Ajayi and Omitogun, 2019;Danmola and Olateju, 2013;Uneze and Ekor, 2012;Oshota, 2015;Udah, 2010;Chete, 2001;Kudaisi and Olomola, 2019;Sule and Shuaibu, 2020;among others).…”

Business Environment of Ukraine: Theoretical Concepts of Innovative Development

“…M. Danlami, N. Loganathan, D. Streimikiene, A. Mardani, A. Golam Hassan [15] argue that the goal of each country is to achieve sustainable economic growth that will lead to economic development in the long run, and many sectors of the economy will contribute to the growth of the nation. However, it is difficult to find out whether financial development leads to economic growth in the long run or vice versa.…”