STRUCTURAL ANALYSIS OF THE NIGERIAN FINANCIAL SYSTEM IN THE POST LIBERALIZATION ERA AND ITS IMPACT ON ECONOMIC GROWTH

STRUCTURAL ANALYSIS OF THE NIGERIAN FINANCIAL SYSTEM IN THE POST LIBERALIZATION ERA AND ITS IMPACT ON ECONOMIC GROWTH

Abstract:

This study assessed the impact of the liberalization of the Nigerian financial system on the structural changes witnessed in the system as a result of liberalization as well as the impact of the resulting structural change on economic growth using a three stage least in a system of three endogenous variables. System of equations was used to capture the transmission mechanism of financial liberalization as contained in the McKinnon and Shaw financial repression hypothesis with annual data from 1986 to 2012. The study found that the Nigeria financial system had undergone major changes in term of both nature and composition. Liberalization further helped in creating a diversified financial system which is vibrant and robust, though deposit money banks still dominate the sector in term of asset base and branch network. Also, this study found that financial structure has a positive impact on savings as well as on economic growth. In addition, both capital market-base and bank-based financial structure have similar impact on both investment and growth thereby relegating the capital market-base versus bank-based argument to the background and favour of the financial market-based view. Therefore, this study recommends that the liberalization of the Nigerian financial system should be sustained and economic policies should be directed at enhancing growth of the financial system.

STRUCTURAL ANALYSIS OF THE NIGERIAN FINANCIAL SYSTEM IN THE POST LIBERALIZATION ERA AND ITS IMPACT ON ECONOMIC GROWTH