Financial Development and Economic Growth: Nigeria and Ghana Experience

Proceedings of The 6th International Conference on Advanced Research in Business, Management and Economics

Year: 2022



Financial Development and Economic Growth: Nigeria and Ghana Experience

Ademola E. Ayodele, George Tweneboah



This study examined financial development and economic growth in Nigeria and Ghana. Specifically, the study analyzed the short run and long run effects of financial development variables (credit to private sector, broad money supply, stock market turnover ratio and market capitalization) on economic growth measured in terms of growth rate of real gross domestic product. The study covered Nigerian and Ghana over the period of 32 years spanning from 1990 to 2021. Data were source from World Development Indicator (WDI) Database. The study employed techniques such as unit root test, co-integration test, ARDL estimation and error correction model (ECM) estimation. Result revealed that credit to private sector as a measure of financial development culminate into increase economic growth of Nigeria only on the long run, while for Ghana such increase in credit to private sector led to increase in the rate of economic growth both on the short run on the long. Increase in money supply contributed significantly to decline in the economy of both countries. Stock market turnover ratio contributed significantly to rising rate of economic growth of Nigeria both on the short run and on the long, while for Ghana its significant positive effect does not transcend the short run, market capitalization exerts insignificant effects on economic growth of Nigeria, but significant effect on that of Ghana. This study concluded that financial development has notable short run and long run effect on the level of economic growth of both Nigeria and Ghana. that there is no substantial difference in the response on economic growth of both Nigeria and Ghana to changes in financial development measures such as credit to private sector, money supply and stock market turnover ratio especially on the short run. Finally, that harnessing financial development through money of supply could be detrimental to sustainable economic growth of both Nigeria and Ghana. Hence this study recommended that Nigeria government should put in place mechanism of policy monitoring that hasten the influence any financial development strategy on the rate of growth of the economy. This could be in form strategic automation of processing of credit allocation and monitoring within the financial system. Government of both countries should ease their focus of using money supply as a mechanism for boosting financial development because its effect both on the short run and on the long is not contributive to real growth of any of the two economies. Policy makers in Ghana should be more conservative when setting structure for boosting the stock market turnover ratio so as not to dampen the long run prospect of growth of the economy.

keywords: Financial Development, Economic Growth, Nigeria, Ghana and ARDL.