Abstract:
This paper investigates whether long-run economic growth can be fostered by the
impact of financial development in Nigeria, and what could be the empirical explanations
for the factors attributable to the continued backwardness of the Nigerian economy in the
current millennium? Is the relationship between financial development and economic growth
monotonic? To ensure this, we measure the short run and long run Impact of Financial
Development on Economic Growth from 1980 to 2011. The “U” and the ARDL bounds
testing approach to cointegration were applied. The findings of the study established that
financial development and population are the only variables that have contributory impacts
in fostering economic growth in both the long-run and short-run in Nigeria. While, M3,
bank asset, fixed capital formation, trade and private sectors have insignificant contribution
to GDP and are the impediments to Nigeria’s growth dilemma. In another dimension the
research established that, the relationship between FD–GDP is monotonic suggesting that
toomuch finance does not prevail in the Nigerian economy. By policy implication the country
will be facing prolonged macroeconomic volatility due to the absence of strong exogenous
risk cushioning effects, chaotic and unfavourable investment climate, unemployment and
persistent exchange rate instability. Eventually these factors could lead to output failure,
deterioration in reserve holding that could translate in to currency crisis and an eventual
financial crisis.We recommend the pursuance of synergistic monetary policy model that will
not only ensure a sustainable and improved value of the local currency but should also create
its foreign demand among others
