IMPACT OF FINANCIAL DEEPENING AND FOREIGN DIRECT INVESTMENT EFFECTIVENESS ON ECONOMIC GROWTH IN NIGERIA

Abstract

The study examined empirically the impact of financial deepening; foreign direct investment on economic growth in Nigeria from 1981 to 2012. The paper seeks to investigate the hypothesis that financial development is positively related to growth. The study utilized the Augmented Dickey-Fuller (ADF) for unit root test and the variables were found to be stationary, though not in their level form but in their first difference and the Johansen co-integration technique indicated the presence of co-integration among the variables, this was followed by the Vector Error Correction Model (ECM) which supports this long run relationship and a satisfactory speed of adjustment. The study concluded that private sector credit, liquidity ratio and foreign direct investment have a statistically significant influence on economic growth. But the ratio of broad Money (M2) to GDP which indicates the overall size of the financial intermediary of a country exerts a negative impact on economic growth. It is important to sustain the influence of finance on growth in Nigeria which requires the sustenance of present reforms in the financial sector as well as guiding against excess money supply on part of the monetary authorities.