Financial development and economic growth in Nigeria: asymmetric cointegration and threshold analysis

Raymond Osi  Alenoghena; Olufemi Muibi  Saibu; Babatunde Wasiu  Adeoye

doi:10.23762/FSO_VOL8_NO4_3

Published : 2020-12-28

Vol. 8 No. 4 (2020)

Financial development and economic growth in Nigeria: asymmetric cointegration and threshold analysis

Raymond Osi Alenoghena

https://orcid.org/0000-0002-2701-2701

Olufemi Muibi Saibu

https://orcid.org/0000-0001-9162-3817

Babatunde Wasiu Adeoye

DOI: https://doi.org/10.23762/FSO_VOL8_NO4_3

Abstract

This study examines the nonlinear relationship between financial development and economic growth in Nigeria, covering the period from 1980 to 2018, in an effort to explain the direction of linearities and determine the exact threshold policy points for financial development variables. The financial development proxies adopted in the
study are broad money and credit to the private sector. While deploying the nonlinear autoregressive distributed lag (NARDL) approach to ascertain the asymmetric cointegration status of financial development and GDP growth, the turning point between the variables of study is estimated using the threshold regression approach. The findings from the NARDL analysis show that the relationship between the financial development variables and economic growth are cointegrated in the long run and have a U-shaped asymmetrical relationship. Furthermore, the discrete threshold regression analysis reveals that while the switching point for broad money is 17.73% of GDP, it is 6.03% of GDP for credit to the private sector. Therefore, whenever the level of the financial development indicators falls below the estimated
tipping point, there is a drag on the country’s economic growth. The study recommends the implementation of the financial development threshold points as the minimum levels by which to achieve positive effects on the country’s economic growth. A further recommendation to achieve rapid progress in financial development entails the rapid monetisation of financial transactions and the expansion of financial access as well as the strengthening of efficiency and regulation of the financial markets.

Keywords:

financial development, broad money, credit to private sector, economic growth, Nonlinear Autoregressive Distributed Lag (NARDL), Threshold Regression

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Alenoghena, R. O. ., Saibu, O. M. ., & Adeoye, B. W. . (2020). Financial development and economic growth in Nigeria: asymmetric cointegration and threshold analysis. Forum Scientiae Oeconomia, 8(4), 43–63. https://doi.org/10.23762/FSO_VOL8_NO4_3

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Raymond Osi Alenoghena

raymondalen2002@gmail.com
https://orcid.org/0000-0002-2701-2701

Affiliation:

University of Lagos, Nigeria Nigeria

Bio Statement (e.g., department and rank)

Raymond Osi Alenoghena has a first and second degree in economics. He also has a Master of Business Administration (MBA) and Master of Banking and Finance (MBF) degrees. He is currently a doctoral student of economics at the University of Lagos, Nigeria. He has spent approximately 20 years of his working life in commercial banking in Nigeria where he rose to a senior management position with experience in regional
management, risk and remedial asset management. In addition, he has spent over 10 years teaching at both polytechnic and university in Nigeria. His areas of private practice include business consulting, corporate training, commercial credit, sales and marketing and research. His research interests and teaching in the economics department cover macroeconomics, development economics, financial economics, econometrics
and monetary economics. He is a member of professional associations including the Nigerian Institute of Bankers, the Nigerian Economic Society and Lagos Business School (SMP). He has attended several courses and conferences both locally and internationally.

Olufemi Muibi Saibu

omosaibu@gmail.com
https://orcid.org/0000-0001-9162-3817

Affiliation:

University of Lagos, Nigeria Nigeria

Bio Statement (e.g., department and rank)

Olufemi Muibi Saibu is a Professor of Development Macroeconomics and Alternative Finance in the Department of Economics at the University of Lagos, Nigeria. He is a graduate of Obafemi Awolowo University, Ile-Ife, and was a Postdoctoral Research Fellow of the University of Johannesburg, South Africa. His research interests include financial diversification, economic inclusiveness, and sustainable development. He has worked with several international organisations and research institutes. He has worked intensively on a baseline economic survey of SMEs and also with the Institute of Public Policy Analysis on pension reforms and on creating an environment for business development in Nigeria. His research focuses on business development and the investment climate, economic impact modelling and optimisation with several publications on policy reforms, business development and development finance. He is a member of the Nigerian Economic Society, the African
Econometric Society, and the Economic Society South Africa, as well as a Research Fellow of the Initiative for Public Policy Analysis,the African Property Tax Initiative, the ARUA Centre of Excellence on Housing and
Sustainable Development, the international Society for Development and Sustainability, and the International Energy Economics Association. Additionally, he is currently an Examiner of the Institute of Chartered Accountants of Nigeria, a member of the Chartered Institute of Stockbrokers and Editorial Board member of the Economic and Policy Review journal of the Nigeria Economic Summit Group (NESG).

Babatunde Wasiu Adeoye

badeoye2010@yahoo.com

Affiliation:

University of Lagos, Nigeria Nigeria

Bio Statement (e.g., department and rank)

Babatunde Wasiu Adeoye has a Ph.D. in Economics specialising in Economic Theory, Applied Econometrics and Financial Economics. He has over 20 years of experience in academic, research and allied fields. He has published widely in reputable journals and has attended several learned conferences, both locally and internationally. He is a member of several professional bodies, among which are the African Econometric Society (AEC), the West African Economic Association (WAEA ), and the Nigerian Economic Society (NES). He is currently an Associate Professor in the Department of Economics, University of Lagos, Akoka, Lagos, Nigeria.