Financial Structure and Economic Growth Nexus in Nigeria

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Adamu Waziri Babagana
Fardous Alom


This study examines the relationship between financial structure (bank-based and market-based) and economic growth in Nigeria over the period 1981-2013. It explores the relative contribution of banks and stock markets to economic growth within the framework of autoregressive distributed lag (ARDL) model. Further, the study looks into different levels of growth by employing quantile regression analysis (QREG). The results based on ARDL model suggest that the relative impacts of stock market on Nigeria’s economic growth is higher than the banking sector. However, the QREG analysis revealed that the banking sector plays a more important role than stock market at both lower and higher levels of economic growth. Although the findings of this study support the theoretical proposition that the bank-based financial system plays a more important role than the stock market at early stages of a country’s economic development, in Nigeria, the latter is found to be more important in the long-run. Additionally, the findings highlight the robustness of QREG analysis in explaining marginal effect of economic growth determinants at different levels of growth. The implication of these findings to policymakers is to ensure that bank credits are channelled towards investments for which the economy has comparative advantage and since the growth prospects of the economy is bright, there is also a need to have a stronger capital market that can accommodate large capital requirements in the future.


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