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The study examined financial development and economic growth in the context of the Nigerian banking system using the Toda-Yamamoto approach to Granger causality to test whether the relationship between financial development and economic growth follows the pattern of supply-leading and demand-following hypothesis propounded by Patrick (1966). The financial development indicators of the banking system, which depicts financial deepening and stability for the period 1960 to 2019 were utilised. The findings of the study showed that the relationship between financial development and economic growth was neither supply-leading nor demand-following for the sub-periods of 1960-1985 and 1986-2019. However, for the entire period of 1960-2019, the demand-following hypothesis was established, suggesting that in Nigeria economic growth granger cause financial development. This implied that financial development stemming from the banking system does not drive economic growth in Nigeria. In view of this, it was recommended that efforts be made by government to diversify and fast-track development in the economy to ensure that financial development impacts on economy.
This paper examines the empirical relationship between long–run growth and the degree of financial development, proxied by the ratio of bank credit to the private sector as a fraction of GDP. We find that this proxy enters significantly and with a positive sign in growth regressions on a large cross–country sample, but with a negative sign using panel data for Latin America. Our findings suggest that the main channel of transmission from financial development to growth is the efficiency of investment, rather than its volume. We also present a model where the negative correlation between financial intermediation and growth results from financial liberalization in a poor regulatory environment.
The study was undertaken with the objective of examining the causal relationship between financial sector performance and economic development vis-a-vis growth of Nigeria. The variables used were GDP, Human Development Index (HDI), which represents the dependent variables for the two models. For the independent variables, Credit to the Private Sector (CPS) which represents the credit activity of the financial sector; Interest Rate Spread (IRS) which represents the efficiency, competition and concentration of the financial sector; Market Turnover Ratio (TR) which represents the liquidity of the financial sector; Other variables that influence economic growth and development were introduced Inflation (INF) and Total Government Expenditure (GE). Moreover, the study period covers 1996 to 2016 and the data collected within the period was analysed using ADF Test and Granger Causality Test. The results showed that IRS causes economic growth which conforms to the supply leading hypothesis theory; but GDP causes financial sector performance through the Credit to Private Sector (CPS), which means the more the economy grows financial sector performance through its credit allocation function increases. This conforms to the demand following hypothesis theory. However, the overall financial sector performance couldn't facilitate effective economic growth vis-à-vis economic development in Nigeria. Thus, regulatory bodies of the financial sector should set or implement monetary policy program that would be favourable for the efficient operations of financial institutions.
This study examined the impact of financial liberalization and trade openness as well as their interactive effects on the growth of the Nigerian economy using annual time-series data for the period, 1981 to 2018. The results of the Augmented Dickey-Fuller (ADF) unit root test show that all the variables are stationary at the first difference and the Johansen cointegration test results confirm the existence of a long-run relationship among the variables in the model. Two equations were specified and estimated using the dynamic ordinary least square (DOLS) estimation technique and the granger causality test was carried out. The results reveal that financial development, exchange rate, and interest rate spread have a significant influence on real GDP in Nigeria while trade openness, as well as its interaction with financial development, do not exert any significant impact on economic growth in Nigeria. Further, this study supports the demand-following and trade-led growth hypotheses. Hence, this study recommends the design and implementation of a policy framework geared towards enhancing the intermediation efforts and deposit mobilization of the financial sector that would instigate the integration of the sector with the various productive sectors of the Nigerian economy and that trade performance in the country to be improved through economic diversification so as to boost exports, raise the country competitiveness and increase her national output.
Master's Thesis from the year 2020 in the subject Economics - Economic Cycle and Growth, grade: 3.33, Ethiopian Civil Service University, language: English, abstract: This paper examined the relationship between banking sector development and economic growth in Ethiopia. The paper also examines the effect of banking development on economic growth in Ethiopia and to establish which theory holds for Ethiopia between the demand-following and the supply-leading theory. Unlike the majority of previous studies, this study uses the newly developed ARDL-bounds testing approach to examine the relationship. The ARDL-bounds testing approach has numerous advantages over other co-integration techniques, especially when a short time-series dataset is used. In order to test the robustness of the empirical results, three proxies of bank-based financial development have been used; namely: 1) the domestic credit provided by the banking sector as a ratio of GDP, 2) broad money supply as a ratio of GD, 3) private credit as percentage of GDP. Annual time series data between the years 1987 and 2019 were used for the study, from the National Bank of Ethiopia (NBE) statistical bulletin. The structural break unit root test revealed that all the variables are stationary at their first difference; the bound test cointegration analysis established the existence of long run relationship among the variables. The ARDL revealed that domestic credit provided by the banking sector significantly affected economic growth in the long run, while private credit statistical significant and negatively affect economic growth in the short run during the period of study. The empirical results of this study show that the effect of banking sector development and economic growth in Ethiopia is sensitive to the proxy used to measure the banking sector development. The policymakers need to make policies that can lead to establishment of banking institutions in the rural areas which have limited access to ban
This is the first comprehensive book on the politics and economics of financial sector consolidation in an emerging market in West Africa. It draws on the author's twenty years experience working with multinationals in this oil-rich zone, to address key issues and examine banking reform in one of the world's fastest-growing economies.
Economics is about understanding the rational behaviour of economic agents (households, firms, industries and government) in their decisions to achieve best outcomes of their goals and aspirations. They collectively converge to achieve the utmost economic and social benefits for all in the country in terms of economic growth and development. Economic growth and development occur through efficient use of available resources to meet effective demand and social needs. The challenge that countries are facing is proper application of appropriate policy mix to optimize the opportunities of increasingly interdependent global economic landscape. For emerging economies, a multiple sector strategy that propels economic transformation is crucial. This needs to be predicated on robust macroeconomic policy framework that aligns with global production and consumption activities to drive economic growth process for achieving sustainable development.
To overcome the limitations of the traditional approach which uses linear causality to examine whether the supply-leading and demand-following theories hold. As certain countries will be found not to follow the theory by using the traditional approach, this paper first suggests using all the proxies of financial development and economic growth as well as both multivariate and bivariate linear and nonlinear causality tests to analyze the relationship between financial development and economic growth. The multivariate nonlinear test not only takes into consideration both dependent and joint effects among variables, but is also able to detect a multivariate nonlinear deterministic process that cannot be detected by using any linear causality test. We find five more countries in which the supply-leading hypothesis and/or demand-following hypothesis hold true than with the traditional approach. However, there is still one country, Pakistan, for which no linear or nonlinear causality is found between its financial development and economic growth. To overcome this limitation, this paper suggests including cointegration in the analysis. This leads us to conclude that either supply-leading or demand-following hypotheses or both hold for all countries without any exception. There will be some types of relationships between economic growth and financial development in any country such that either they move together or economic growth causes financial development or financial development causes economic growth without any exception. The finding in our paper is may be useful for governments, politicians, and other international institutions in their decision making process for the development of the countries and reducing poverty.