Call for Papers : Volume 15, Issue 03, March 2024, Open Access; Impact Factor; Peer Reviewed Journal; Fast Publication

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Does financial deepening follow supply leading or demand following hypothesis? : a look at the Nigerian evidence

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This study employed the granger causality test to ascertain the direction of causality between various proxies of financial deepening and economic growth in Nigeria over the period, 1990-2009. The study utilized the Augmented Dickey-Fuller (ADF) test for unit root test and the variables were found to be uniformly stationary in their second difference. The co-integration test results indicated the presence of no co-integration among the variables. The result of the granger causality test showed that with the exception of market capitalisation which granger causes real GDP at lag 2 and 3 without feed back effect, causation runs from the growth indicator (RGDP) to other variants of financial deepening namely economic volatility, market liquidity, money market diversification and broad money velocity. Thus, financial deepening in Nigeria follows demand following hypothesis. In the light of the above findings, government policy while pursuing growth oriented programmes should also be geared towards a conducive and efficient capital market to encourage the flow of market capitalization to finance long term growth related investments.

Author: 
Hamilton. O. Isu and Godwin Chigozie Okpara
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