Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Abstract

For over a decade now, various efforts have been put in place by various governments of the developing economies to promote economic growth, financial development and expand trade with mixed results. The ability of financial development and/or trade openness to influence economic growth in the developing economies has been a subject of hot debate and remains inconclusive. While a number of scholars are of the view that compelling cointegration exists among each of these constructs, another set of substantial authors have documented that economic growth, trade openness and financial development do evolve independent of each other. Drawing from four financial developments–growth nexus theories, this study used the ARDL bound estimation techniques to examine the existence of cointegration among economic growth, financial development and trade openness in Nigeria. We intend to know what policy instruments need to be manipulated so as to achieve economic growth and financial stability. Our results show that a two-way cointegration exists between economic growth and financial development, on the one hand, as well as between economic growth and trade openness, on the other hand. We therefore recommend that in order to achieve economic growth, policy-makers should pursue strong financial development and increase trade openness.

Keywords:

• economic growth
• financial development
• trade openness
• ARDL
• Nigeria

JEL classifications:

• C10
• E01
• F43
• G00
• O54

Public Interest Statement

Nigeria dreams of achieving sustainable economic growth and to be enlisted among the first 20 largest economies in the world by the year 2020. However, to achieve sustainable economic growth, financial stability that accommodates trade openness is very crucial. Literature on the links among these constructs is at best mixed, with very scanty literature on the subject matter from Africa, most especially Nigeria. This study will be of public interest as it provides insight on the connections among these three constructs with focus on Africa’s largest economy. Our model will be useful for other economies with similar characteristics as Nigeria.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

Adedoyin Isola Lawal

Adedoyin Isola Lawal lectures at the Department of Accounting and Finance, Landmark University, Omu Aran, Nigeria. He holds a bachelor’s degree in Economics from the University of Ilorin, Ilorin, and a master’s in Banking and Finance from Bayero University, Kano. He is at present on his PhD programme in Banking and Finance at Covenant University, Ota, where he is about to defend his oral thesis. He has published extensively in reputable journals. Lawal reviews for a number of Journals like African Development Review (Wiley); The Quarterly Review of Economics and Finance (Elsevier); International Journal of Emerging Markets (Emerald Insight); Cogent Social Sciences (Taylor and Francis); Palgrave Communication (Palgrave); Asian Economic and Financial Review; International Journal of Business, Economics and Management; and Journal of Empirical Research. He is on the Editorial Board of the Binus Business Review (Binus University, Indonesia) and Human and Social Science Letters.