Current Volume 8
Financial Development and Economic Growth in Nigeria: A Dynamic Simulation Using Dynamic ARDL
Abstract
This study employs annual time series data over the period of (1980-2021) to re-access the relationship between financial development and economic growth in Nigeria using a Novel Dynamic Autoregressive Distributed Lag (DYARDL) simulation, which allows for an examination of both short- and long-term dynamics. The study confirms a long-run relationship between financial development and economic growth, as established through the bounds test for cointegration. The overall results reveal that an increase in financial development (FD) leads to a rise in GDP in the long run and the short run, with financial markets index (FMI) playing a more significant role in driving growth than financial institutions index (FII). The error correction term (ECT) of -0.27 in the ARDL model and -0.24 in the DYARDL model further confirm a robust adjustment toward equilibrium. However, banking sector expansion (FII) does not significantly impact growth, possibly due to risks associated with excessive lending and financial instability. The study also simulates the asymmetric effects of financial development shocks on economic growth, and found that positive shocks in capital markets spur growth, while negative shocks adversely affect GDP. These findings highlight the importance of financial market stability and efficient capital allocation in fostering economic growth.
Keywords
Dynamic ARDL Simulation; financial development index, counterfactual shocks, financial institutions, financial markets
Citations
IRE Journals:
Murtala Abdu , Aminu Hassan Jakada , Abdulnasir T. Yola , Nadira Madaki Iliyasu , Umar Musa Kallah
"Financial Development and Economic Growth in Nigeria: A Dynamic Simulation Using Dynamic ARDL" Iconic Research And Engineering Journals Volume 8 Issue 12 2025 Page 665-676
IEEE:
Murtala Abdu , Aminu Hassan Jakada , Abdulnasir T. Yola , Nadira Madaki Iliyasu , Umar Musa Kallah
"Financial Development and Economic Growth in Nigeria: A Dynamic Simulation Using Dynamic ARDL" Iconic Research And Engineering Journals, 8(12)
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