IMPACT OF FINANCIAL INTERMEDIATION ON NIGERIA ECONOMIC GROWTH

IMPACT OF FINANCIAL INTERMEDIATION ON NIGERIA ECONOMIC GROWTH

ABSTRACT

One of the activities of financial institutions (banks) involves intermediating between the surplus and deficit units of the economy. Banks as financial intermediaries emerge to lower the cost of reaching potential investments,  exerting corporate controls, managing risks, mobilizing savings and conducting exchanges. In Nigeria, banks dominate the financial sector and there is detailed information about Nigerian banking history but little information is available on the activities of the financial industry and how they affect the economy where they operate. Therefore, this study explored in the light of past trends, the extent to which financial intermediation impacted on the economic growth of Nigeria between the period 2000 – 2015. The study adopted the ex-post facto research design. Time series data for the twenty years period 2000 – 2015 were collated from secondary sources and the Ordinary Least Squares (OLS) regression technique was used to estimate the hypotheses formulated in line with the objectives of the study. Real Gross Domestic Product per capita, proxy for economic growth was adopted as the dependent variable while the independent variables included bank deposits, bank credits and bank liquid reserves. The empirical results of this study show that bank deposits, bank credits and bank liquid reserves exert a positive and significant impact on the economic growth of Nigeria for the period 2000 – 2015. This paper recommended amongst others that banks should adopt and engage in aggressive marketing of their services in order to help increase their deposit base and as well ensure that a major part of their credit is channeled to the productive sectors of the economy such as agriculture, industry and power to encourage growth of the economy. It further recommended that banks should shore up their liquid reserves to further enhance stability of their operations.

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