Banks, markets, and economic growth in Nigeria

Abstract

This paper examines proxies of money market, capital market, and banks in Nigeria using annual data from 1961 to 2018. We employ autoregressive distributed lag (ARDL) bounds testing approach, Wald test, and vector error correction model (VECM) Granger causality technique to analyse the data. Our findings show that total subscriptions of treasury bills has a positive and negative statistically significant relationship with real gross domestic product (GDP) on the long-run and short-run, respectively. Hence, we argue that markets and banks exhibit competitive interaction in favour of markets in Nigeria. Additionally, our findings show a unidirectional short-run causality from real GDP to value of transactions on the Nigerian Stock Exchange (NSE). Furthermore, our results support the existence of growth-led finance view or demand-following hypothesis in Nigeria, as we observe a unidirectional long-run causality from real GDP to both value of money market instruments outstanding as at end-period and total subscriptions of treasury bills.

Impact statement

This study investigates finance-growth nexus in Nigeria with a particular focus on banks and markets. The findings of this research reveal that the role of markets on economic growth is superior to banks in Nigeria. Hence, banks and markets are competitive. Additionally, our empirical findings provide evidence to support the existence of growth-led finance view in Nigeria. This research explains the relevance of the financial system on economic growth in Nigeria and provides corresponding insights to policy makers.

Keywords:

• Banks
• markets
• economic growth
• growth-led finance
• Nigeria

REVIEWING EDITOR:

• Vassilios Papavassiliou, University College Dublin, Ireland

SUBJECTS:

• Economics
• Econometrics
• Banking

JEL CLASSIFICATION CODES:

• D53
• E44
• E52
• E58
• G21

Acknowledgements

The authors are solely responsible for comments, suggestions, and views in this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data for this study are available on request from the authors.

Notes

1 The commercial banks in Nigeria as at January 2022 are Access Bank Plc, Citibank Nigeria Limited, Ecobank Nigeria Plc, Fidelity Bank Plc, First Bank Nigeria Limited, First City Monument Bank Plc, Globus Bank Limited, Guaranty Trust Bank Plc, Heritage Banking Company Ltd, Key Stone Bank, Polaris Bank, Providus Bank, Stanbic IBTC Bank Ltd, Standard Chartered Bank Nigeria Ltd, Sterling Bank Plc, SunTrust Bank Nigeria Limited, Titan Trust Bank Ltd, Union Bank of Nigeria Plc, United Bank for Africa Plc, Unity Bank Plc, Wema Bank Plc, Zenith Bank Plc (CBN, 2022).

Additional information

Funding

The authors received no financial support for the research.

Notes on contributors

Adeola Y. Oyebowale

Dr. Adeola Y. Oyebowale is a Senior Lecturer in Finance and Risk Management at Sheffield Business School, Sheffield Hallam University, UK. His research interests include time series analysis, finance-growth nexus, corporate finance, financial regulation, and portfolio analysis.

Amr S. Algarhi

Dr. Amr S. Algarhi is a Senior Lecturer in Economics at Sheffield Business School, Sheffield Hallam University, UK. His research interests are largely concentrated on applied econometrics, time series analysis, and macroeconomics. Amr specialises in financial econometrics and time series analysis, economic growth, economic policy, international economics, environmental economics, and governance.