Determinants of Financial Intermediation and its Implications on Economic Growth in Nigeria

Abstract

This study investigated the determinants of financial intermediation and its implication on economic growth in Nigeria from 1995 to 2019 using the Auto-regressive Distributed Lag (ARDL) Approach. Various financial intermediation determinant proxies considered include total bank deposit (TBD), private sector credits (PSC), broad money supply (BMS), and interest rate spread (IS) against real Gross Domestic Products. We sourced information from the CBN statistical bulletin and World Bank data bank from 1995 to 2019. The unit root test reported mixed integration while the ARDL bound Cointegration test reported that financial intermediation determinants and growth are related in the long run. Specifically, the short-run ARDL result reported that past values of TBD, PSC, and BMS exerted a direct impact on the Nigerian economy. However, the past values of INS impaired the economic growth of Nigeria. Also, in the case of the ARDL Long run Coefficient, only TBD and BMS induced growth positively and significantly in the long run. Hence, we conclude that TBD and PSC induce growth only if the money in circulation and interest rate spread are low. It is on this premise; the study recommends that banks should increase their deposit mobilization and accumulation outlets since it is growth-inducing both in the short and long run. Again, banks should more credit facilities to the private sector since it is growth-inducing both in the short and long run.