The Effect of Financial Deepening on Economic Growth in Nigeria (1985 -2014)

This research work examines financial deepening and economic growth in Nigeria from 1985 to 2014. It focused on the impact of stock market and bank deepening variables such as money supply, market capitalization, private sector credit and financial savings have on economic growth of Nigeria. Stock market provides the avenue through which long term fund could be raised for investment project. It is reputed to perform critical functions, which promote economic growth and prospects of the economy. The study adopted the supply leading hypothesis. The study used annual time series data for 1985 to 2014 obtained from the Central Bank of Nigeria statistical bulletin. The ordinary least square (OLS) econometric techniques were employed in which variations in the dependent variable, economic growth, measured by gross domestic product growth rate were regressed on money supply ratio to gross domestic product, private sector credit ratio to gross domestic product, market capitalization ratio to gross domestic product and financial saving ratio to gross domestic product using time series data from 1985 to 2014. The result of the analysis reveals that both bank based and stock market financial deepening proxies has significant and positive effect on economic growth and that the banking sector and stock market in Nigeria has an important role in the process of economic growth. Based on the findings there should be improvement by encouraging more participation in the stock market. Easing restrictions on international capital and entry into stock market to ensure more companies are listed.