International Journal of Economics, Finance and Management Sciences

| Peer-Reviewed |

Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach

Received: 15 November 2016    Accepted: 01 December 2016    Published: 12 January 2017
Views:       Downloads:

Share This Article

Abstract

This paper investigates the relationship between financial depth, macroeconomic volatility, and economic growth in Nigeria using a general model of error correction and causality model with time series sourced from Central Bank of Nigeria Bulletin 2012. The result shows a long-run impact of financial deepening on exchange rate volatility and economic growth while the error correction term indicates that there is no long-run impact of financial depth on growth volatility. On one hand, there is no short run impact of financial depth on exchange rate and growth volatility though most of the financial deepening variables show signs of dampening the volatility of exchange rate and growth. On the other hand, the error correction result suggests that there is a long-run and short-run impact of financial deepening on economic growth. The causality result showed no causality between financial deepening variable, economic growth, and growth volatility but a unidirectional causality between exchange rate volatility, stock traded, stock market capitalization, and broad money. We therefore, suggest that government and policy makers to embrace policies that will deepen financial services in Nigeria.

DOI 10.11648/j.ijefm.20170501.16
Published in International Journal of Economics, Finance and Management Sciences (Volume 5, Issue 1, February 2017)
Page(s) 66-80
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Financial Deepening, Macroeconomic Volatility, Economic Growth, Exchange Rate, Error Correction, Causality

References
[1] A. R. Ogbuagu and D. B. Ewubare (2014). Financial Deepening and Inflation in Nigeria, “An Open Economy Model Approach.” Journal of Economic and Sustainable Development; 5 (25): ISSN 2222- 2855 (online)
[2] P. Aghion, G. Angeletos,. A Banerjee, and K. Manova, (2010), “Volatility and Growth: Credit Constraints and the Composition Of Investment,” Journal of Monetary Economics; 57, Pp 246-65. Available; http://web.stanford.edu/~manova/AABM.pdf
[3] International Monetary Fund (2012). Enhancing Financial Sector Surveillance in Low – Income Countries- Financial Deepening and Macro- Stability; Board Paper.
[4] H. Patrick (1966) ‘Financial Development and Economic Growth in Underdeveloped countries’, EconomicDevelopment and Cultural Change, 14 (1), Pp 174-189.
[5] P. Aghion, P. Bacchetta, Romain Rancere, and Kenneth Rogoff (2009). “Exchange Rate Volatility and Productivity Growth. The Role of Financial Development”. Journal of Monetary Economics; 56, Pp 497-513.
[6] R. I. McKinnon, (1973) “Money and capital in economic development”, the Brookings institution, Washington D. C.
[7] E. S. Shaw, (1973). “Financial deepening in economic development, New York, Oxford University Press, London and New York. Available; http://www.rbi.org.in/script/Bs-speechesview.aspx?id=310
[8] C. Calderon, and L Liu, (2002) “The direction of causality between financial development and economic growth”, working paper No. 184. Available; https://ideas.repec.org/p/chb/bcchwp/184.html
[9] R. Levine, N. Loayza and T. Beck (2002) “Financial intermediation and growth: causality and causes” Journal of Monetary Economic, 46, Pp 31-77.
[10] H. Marashdeh and H. Al-Malkawi. (2014). “Financial Deepening and Economic Growth in Saudi Arabia” Journal of Emerging Market Finance 13 (2); Pp 139 – 154. doi: 10.1177/0972652714541339
[11] N. Odhiambo (2007). “Supply – Leading Versus Demand – Following Hypothesis; Empirical Evidence from Three SSA Countries. African Development Review 19 (2); Pp252-280. DOI: 10.1111/j.1467-8268.2007.00161.x
[12] Chang Shu-Chen and Wu Chan – Hsian (2012). “The Relationship between Financial Deepening and Economic Growth in Taiwan” Journal of Business, Economics, Financial Science and Management; 143: Pp 205 – 210. Dio: 10./007/978-3-642-27966-9.29
[13] J. U. Onwumere. And G. Ibeh. (2013), “Financial Strucutre on Economic Growth; Evidence from Nigeria” Global Journal of Management and Business Research Finance; 13 (5): ISSN; 2249-4588.
[14] S. Ayodele (2012). “Financial Intermediation and Economic Growth in Nigeria”, British Journal of Arts and Social Science; 4 (2), ISSN- 2046-9578.
[15] J. Ang (2007), “Financial Deepening and Economic Development in Malaysia” Asian Business and Economics Research Unit, Discussion Paper 42, Available; https://ideas.repec.org/a/eee/moneco/v56y2009i4p494-513.html
[16] C. Denizer, M. Iyigun, and A. Owen, (2002), “Finance and Macroeconomic Volatility,” Contribution to Macroeconomics; 2. Available; http://mpra.ub.uni-muenchen.de/11113
[17] Acemoglu, Daron, Simon Johnson, and James A. Robinson. (2003). “An African Success: Botswana.” In Dani Rodrik, ed., In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton: Princeton University Press.
[18] Beck, T., M. Lundberg, and G. Majnoni, 2006, “Financial Intermediary Development and Growth Volatility: Do Intermediaries Dampen or Magnify Shocks,” Journal of International Money andFinance; 25: Pp1146- 1167.https://pure.uvt.nl/portal/files/1024310/blm.pdf
[19] S. Odeniran and E. Udeaja (2010). “Financial Development and Economic Growth” Empirical Evidence from Nigeria. Central Bank of Nigeria Economic and Financial Review; 20: 91-124 Available –www.cenbank.org/out/2012
[20] C. Osuji and E. Chigbu (2012). “An Evaluation of Financial Development and Economic Growth of Nigeria “A Causality Test” Kuwait Chapter of Arabian Journal of Business and Management Review 1 (10): Pp 27-44.
[21] Balago Garba (2014). “Financial Sector Development and Economic Growth in Nigeria, “An Empirical Investigation”. International Journal of Finance and Accounting; 3 (4): Pp253-265. doi: 5923/j.ijfa.20140304.05
[22] International Monetary Fund (2015). “Rethinking Financial Deepening: Stability and Growth in Emerging Markets” IMF Staff Discussion Note Pp. 1-41
[23] D. Acemoglu, and F. Zilibotti, (1997) “Was Prometheus Unbound by Chance? Risk, Diversification, and Growth”, Journal of Political Economy, Vol. 105, No 4, 1997, pp. 709-51.
[24] Moore, B. J (1986), “Inflation and Financial Deepening” Journal of Development Economics, January/February; Pp 125-133.
[25] R. Levine, (2005), “Finance and Growth: Theory and Evidence” in P. Aghion and S. N. Durlauf (eds.), Handbook of Economic Growth, Vol. 1A, North-Holland, Amsterdam, 865-934.
[26] Beck Thomas (2011), “The Role of Finance in Economic Development; Benefits, Risks and Politics. European Banking Centre Discussion Paper No 211-038, Avalaible; http://www.unitus.it/dipartimenti/distateq/garofalo/SSRN-id1974471.pdf
[27] International Monetary Fund (2013). “Nigeria Financial Sector Stability Assessment” IMF Country Reput No 13/140. Available: https://www.imf.org/external/pubs/ft/scr/2013/cr.13140.pdf
[28] N. Nader, (2005). “Deregulation, Financial Deepening and Economic Growth; the Case of Latin America” The Quarterly Review of Economics and Finance: 45 (2-3); pp 447-459.
[29] M. Hazem and A. Husam (2014). “Financial Deepening and Economic Growth in Saudi Arabia”. Journal of emerging Market Finance: 13 (2); pp 139-154. Available; sagepub.com/content/13/2/139.short
[30] M. Bakang (2015). “Effect of Financial Deepening on Economic Growth in Kenya” International Journal of Business and Commerce: 4 (7); pp 1-50.
[31] A. Darrat (2006). “Are Fiancial Deepening and Economic Growth Causally Related? Another look at the Evidence” International Economic Journal; 13 (3): pp 13-32. http://dx.doi.org//0/1080/101687399
[32] Adjei S. Bismar Kosee and Mensah O (2016). Financial Deepening and Economic Growth in Ghana; A Cointegration Analysis. International Journal of Current Research: 8 (1); pp 25736–25743.
[33] V. Murinde and S. Fern (2010). “ Financial Development and Economic Growth in Singapore: Demand-Following or Supply Leading?” Applied Financial Economics; 4 (6): Pp 391-404.
[34] Tsangyao Chang (2010). Financial Development and Econoomic Growth in Mainland China. A note on testing Demand Following or Supply Leading Hypothesis” Journal of Applied Economics Letter; 9 (13): pp 869-873.
[35] M. Habibullah and Yoke-Kee (2007). “Does Financial Developemnt cause Economic Growth? Apanel Data Dynamic Analysis for Asian Developing Countries” Journal of Asian Pacific Economy: 11 (4); pp 377-393.
[36] J. Thornton, (1994). “Financial Deepening and Economic Growth: Evidence from Asian Economics”. International Monetary Fund/ University of Wales; Bangor in JSTOR 18 (1); Pp 41-51. Available: http//www.jstor.org/stable/25830365
[37] P. Ardic and H. Damar (2006). “Financial Sector Deepening and Economic Growth: Evidence from Turkey. Pp. 1-25. Available; www. Luc.edu/orgs/meea/volume9/pdfs/dammar%20Ardic%20%20paper.pdf
[38] A. Kose, S. Eswar and Macro Terrones (2003) “Financial Integration and Macroeconomic Volatility. IMF Working Paper WP/03/50. Pp 1-23.
[39] K. Andrew and M. Spiiegel (2007). “International Financial Remoteness and Macroeconomic Volatility” International Monetary Fund, pp 1-41.
[40] Era Dable- Norris & Srivisal Narapong (2013). “Revisiting the Link between Finance and Macroeconomic Volatility. IMF Working Paper. WP/13/29. Pp 1-33. Available: http://www./IMF.org.external/pubs/ft/wp/2013/wp1329pdf
[41] Jinyoung Awang and Jong Ha Lee (2013). Financial Deepening and Business Cycle Volatility in Korea. Journal of Applied Financial Economics Volumes 23; 21. Taylor & Francis online.
[42] H. Marashdeh, Husam-Aldin, and N. Al-Malkawi (2014). “Financial Deepening and Economic Growth in Saudi Arabia”, Journal of Emerging Market Fiance 13 (2); Pp 139-154. doi: 10.1177/0972652714541339
[43] Rahman Matiur and Mustafa Muhamadu (2015). Financial Deepening and Stock Market Returns; Panel Cointegration Analyses. Available; http://swfa2015.uno.edu/D_International_Markets_II/paper_232.pdf
[44] A. Ahmed and S. Surdi. (2009). “Do Financial and Trade Liberalization cause Macroeconomic Volatility in Sub-Saharan Africa?” Working Paper No 44, Centre for Strategic Economic Studies (CSES) Victoria University Melbourne. Pp 1-35.
[45] V. Oriavwote. And S. Esheneke (2014). “An Empirical Assessment of Financial Sector Development and Economic Growth in Nigeria”. International Review of Management and Business Research; 3 (1)
[46] A. Shittu, (2012). “Financial Intermediation and Economic Growth in Nigeria”. British Journal of Art and Social Science, 2 (2).
[47] M. Okoli (2013). “Evaluating The Nexus Between Financial Deepening and Stock Market in Nigeria”, European Scientific Journal: 8/15; ISSN- 1857-7431.
[48] World Bank (2000). “Nigerian Financial Sector Review and Macroeconomic Environment. Document of World Bank. Avaible; http:openknowledge.worldbank.org
[49] A. Ogbuagu and E. Ifionu. (2015). “Causality between Capital Flow, Human Capital Development and Economic Growth; A Case of Nigeria”. International Journal of Financial Research; 6 (3); pp 116-134.
[50] C. Raddatz, (2006), “Liquidity Needs and Vulnerability to Financial Underdevelopment,” Journal of Financial Economics; 80: Pp 677-722.
[51] B. Larrain, (2006), “Do Banks Affect the Level and Composition of Industrial Volatility,” Journal of Finance: 61: Pp 1897-1925.
[52] Era Dable- Norris & Srivisal Narapong (2012). “Financial Depth and Macroeconomic Volatility; In Enhancing Financial Sector Surveillance in Low –Income Countries – Background Paper: Integrational Monetary Fund Paper. Available://www.imf.org/external/np/pp/eng/2012/041612a.pdf
[53] J. U. Onwumere, F. Ozo, and O. Mounanu (2012). “The Impact of Financial Deepending on Economic Growth, Evidence from Nigeria.” Research Journal of Finance and Accounting: 3 (10): ISSN 2222- 2897.
Author Information
  • Department of Economics and Developmental Studies, Federal University, Ndufu –Alike Ikwo, Nigeria

  • Department of Agriculture and Applied Economics/Ext, Rivers State University of Science and Technology, Port Harcourt, Nigeria

Cite This Article
  • APA Style

    Anuli Regina Ogbuagu, Dennis Brown Ewubare. (2017). Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach. International Journal of Economics, Finance and Management Sciences, 5(1), 66-80. https://doi.org/10.11648/j.ijefm.20170501.16

    Copy | Download

    ACS Style

    Anuli Regina Ogbuagu; Dennis Brown Ewubare. Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach. Int. J. Econ. Finance Manag. Sci. 2017, 5(1), 66-80. doi: 10.11648/j.ijefm.20170501.16

    Copy | Download

    AMA Style

    Anuli Regina Ogbuagu, Dennis Brown Ewubare. Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach. Int J Econ Finance Manag Sci. 2017;5(1):66-80. doi: 10.11648/j.ijefm.20170501.16

    Copy | Download

  • @article{10.11648/j.ijefm.20170501.16,
      author = {Anuli Regina Ogbuagu and Dennis Brown Ewubare},
      title = {Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {5},
      number = {1},
      pages = {66-80},
      doi = {10.11648/j.ijefm.20170501.16},
      url = {https://doi.org/10.11648/j.ijefm.20170501.16},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijefm.20170501.16},
      abstract = {This paper investigates the relationship between financial depth, macroeconomic volatility, and economic growth in Nigeria using a general model of error correction and causality model with time series sourced from Central Bank of Nigeria Bulletin 2012. The result shows a long-run impact of financial deepening on exchange rate volatility and economic growth while the error correction term indicates that there is no long-run impact of financial depth on growth volatility. On one hand, there is no short run impact of financial depth on exchange rate and growth volatility though most of the financial deepening variables show signs of dampening the volatility of exchange rate and growth. On the other hand, the error correction result suggests that there is a long-run and short-run impact of financial deepening on economic growth. The causality result showed no causality between financial deepening variable, economic growth, and growth volatility but a unidirectional causality between exchange rate volatility, stock traded, stock market capitalization, and broad money. We therefore, suggest that government and policy makers to embrace policies that will deepen financial services in Nigeria.},
     year = {2017}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Financial Deepening Implications for Macro-economic Volatility and Economic Growth in Nigeria, A Multivariate Approach
    AU  - Anuli Regina Ogbuagu
    AU  - Dennis Brown Ewubare
    Y1  - 2017/01/12
    PY  - 2017
    N1  - https://doi.org/10.11648/j.ijefm.20170501.16
    DO  - 10.11648/j.ijefm.20170501.16
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 66
    EP  - 80
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20170501.16
    AB  - This paper investigates the relationship between financial depth, macroeconomic volatility, and economic growth in Nigeria using a general model of error correction and causality model with time series sourced from Central Bank of Nigeria Bulletin 2012. The result shows a long-run impact of financial deepening on exchange rate volatility and economic growth while the error correction term indicates that there is no long-run impact of financial depth on growth volatility. On one hand, there is no short run impact of financial depth on exchange rate and growth volatility though most of the financial deepening variables show signs of dampening the volatility of exchange rate and growth. On the other hand, the error correction result suggests that there is a long-run and short-run impact of financial deepening on economic growth. The causality result showed no causality between financial deepening variable, economic growth, and growth volatility but a unidirectional causality between exchange rate volatility, stock traded, stock market capitalization, and broad money. We therefore, suggest that government and policy makers to embrace policies that will deepen financial services in Nigeria.
    VL  - 5
    IS  - 1
    ER  - 

    Copy | Download

  • Sections