Financial Deepening, Foreign Direct Investment and Output Performance in Nigeria

Mumeen Olatunbosun Alabi, Sheriffdeen Adewale Tella, Ibrahim Abidemi Odusanya, Olumuyiwa Ganiyu Yinusa

Abstract


This study examines the relationship between financial deepening, foreign direct investment and output performance in Nigeria from 1980-2015 using the Autoregressive Distributed Lag (ARDL) Bound Test approach. A long-run relationship was established between financial deepening indicators, foreign direct investment and output performance in Nigeria. Foreign direct investment and market capitalization as a percentage of the GDP exerted significantly on output performance both in the short-run and in the long-run periods. It is recommended that financial depth should be enhanced through improved and highly efficient provision of credit by banks to the real sector of the Nigerian economy.

Keywords


financial sector; co-integration; output; Nigeria.

JEL Codes


C32; E44; E51; G20.

Full Text:

PDF

References


Abu-Bader, S., and Abu-Qarn, A., 2008. Financial development and economic growth: The Egyptian experience. Journal of Policy Modeling, 30(5), 887-898. doi: http://dx.doi.org/10.1016/j.jpolmod.2007.02.001

Adams, S., and Opoku, E. E., 2015. Foreign Direct Investment, Regulations and Growth in sub-Saharan Africa. Journal of Economic Analysis and Policy, 6(15), 313-592.

Adegboyega, S. B., and Odusanya, I. A., 2014. Financial Sector Development and Economic Growth: The Nigeria Experience. Scholarly Journal of Business Administration, 4(5), 124-131.

Ahmed, E. M., 2012. Are the FDI inflow spillover effects on Malaysia's economic growth input driven? Economic Modelling, 29(4), 1498-1504. doi: http://dx.doi.org/10.1016/j.econmod.2012.04.010

Apergis, N., Filippidis, I., and Economidou, C., 2007. Financial deepening and economic growth linkages: A panel data analysis. Review of World Economics, 143(1), 179-198. doi: http://dx.doi.org/10.1007/s10290-007-0102-3

Bangake, C., and Eggoh, J. C., 2011. Further evidence on finance-growth causality: A panel data analysis. Economic Systems, 35(2), 176-188. doi: http://dx.doi.org/10.1016/j.ecosys.2010.07.001

Bannerjee, A., Dolado, J., and Mestre, R., 1998. Error-correction mechanism tests for co-integration in single equation framework. Journal of Time Series Analysis, 19(3), 267-283. doi: http://dx.doi.org/10.1111/1467-9892.00091

Barro, R. J., and Sala-i-Martin, X., 1995. Technological diffusion, convergence, and growth. National Bureau of Economic Research, w5151.

Coase, R. H., 1937. The nature of the firm. Economica, 4(16), 386-405. doi: http://dx.doi.org/10.1111/j.1468-0335.1937.tb00002.x

Ductor, L., and Grechyna, D., 2015. Financial development, real sector, and economic growth. International Review of Economics & Finance, 37, 393-405. doi: http://dx.doi.org/10.1016/j.iref.2015.01.001

Eller, M., Haiss, P., and Steiner, K., 2006. Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel. Emerging Markets Review, 7(4), 300-319.

Engle, R. F., and Granger, C. W. J., 1987. Co-integration and error correction: Representation, estimation and testing. Econometrica, 55(2), 251-276. doi: http://dx.doi.org/10.2307/1913236

Georgantopoulos, A. G., and Tsamis, A. D., 2011. The causal links between FDI and economic development: Evidence from Greece. European Journal of Soil Science, 27(1), 12-20.

Grossman, G. M., and Helpman, E., 1991. Trade, knowledge spillovers, and growth. European Economic Review, 35(2-3), 517-526. doi: http://dx.doi.org/10.1016/0014-2921(91)90153-A

Gui-Diby, S. L., 2014. Impact of Foreign Direct Investments on Economic Growth in Africa: Evidence from Three Decades of Panel Data Analyses. Journal of Research in Economics, 68(3), 248-256. doi: http://dx.doi.org/10.1016/j.rie.2014.04.003

Hansen, H., and Rand, J., 2006. On the causal links between FDI and growth in developing countries. World Economy, 29(1), 21-41. doi: http://dx.doi.org/10.1111/j.1467-9701.2006.00756.x

Hennart, J. F., 1982. A theory of multinational enterprise: Univ of Michigan Pr.

Hermes, N., and Lensink, R., 2003. Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 40(1), 142-163. doi: http://dx.doi.org/10.1080/00220380412331293707

Johansen, S., and Juselius, K., 1990. Maximum likelihood estimation and inference on co-integration with applications to the demand for money. Oxford Bulletin, 52(2), 169-210. doi: http://dx.doi.org/10.1111/j.1468-0084.1990.mp52002003.x

Kakar, Z. K., Khilji, B. A., and Khan, M. J., 2011. Financial development and energy consumption: Empirical evidence from Pakistan. International Journal of Trade, Economics and Finance, 2(6), 469-471.

Khan, M. M. S., and Senhadaji, M. A. S., 2000. Financial development and economic growth: an overview. International Monetary Fund, 0-209.

Lee, C., and Chang, C., 2009. FDI, Financial Development and Economic Growth: International Evidence. Journal of Applied Economics, 12, 249-271.

Levine, R., Loayza, N., and Beck, T., 2000. Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31-77. doi: http://dx.doi.org/10.1016/S0304-3932(00)00017-9

Ljungwall, C., and Li, J., 2007. Financial sector development, FDI and economic growth in China: China Center for Economic Research.

Mishra, S., and Narayan, P. K., 2015. A nonparametric model of financial system and economic growth. International Review of Economics & Finance, 39, 175-191. doi: http://dx.doi.org/10.1016/j.iref.2015.04.004

Nzotta, S. M., and Okereke, E. J., 2009. Financial deepening and economic development of Nigeria: An Empirical Investigation. African Journal of Accounting, Economics, Finance and Banking Research, 5(5), 52-66.

Odeniran, S. O., and Udeaja, E. A., 2010. Financial sector development and economic growth: Empirical evidence from Nigeria. Economic and Financial Review, 48(3), 91-124.

Odhiambo, N. M., 2008. Financial depth, savings and economic growth in Kenya: A dynamic causal linkage. Journal of Economic Modeling, 25(4), 704-713. doi: http://dx.doi.org/10.1016/j.econmod.2007.10.009

Oniore, J. O., 2014. Impact of financial deepening and foreign direct investment effectiveness on economic growth in Nigeria. International Journal of Economics, Commerce and Management, 2(10).

Oriavwote, V. E., and Eshenake, S. J., 2014. An Empirical Assessment of Financial Sector Development and Economic Growth in Nigeria. International Review of Management and Business Research, 3(1), 139-149.

Ozturk, I., and Acaravci, A., 2013. the long-run and causal analysis of energy, growth, Openness and financial development on carbon emissions in Turkey. Energy Economics, 36, 262-267. doi: http://dx.doi.org/10.1016/j.eneco.2012.08.025

Patrick, H. T., 1966. Financial development and economic growth in underdeveloped countries. Economic Development and Cultural Change, 14(2), 174-189. doi: http://dx.doi.org/10.1086/450153

Pesaran, H. M., and Shin, Y., 1999. Autoregressive distributed lag modeling approach to co-integration analysis. In S. Storm (Ed.), Econometrics and Economic Theory in 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press. doi:http://dx.doi.org/10.1017/CCOL521633230.011

Pesaran, H. M., Shin, Y., and Smith, R. J., 2001. Bound testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. doi: http://dx.doi.org/10.1002/jae.616

Pradhan, R. P., Arvin, M. B., Hall, J. H., and Bahmani, S., 2014. Causal Nexus between Economic Growth, Banking Sector Development, Stock Market Development, and other Macroeconomic Variables: The case of ASEAN countries. Journal of Review of Financial Economics, 23(4), 155-173. doi: http://dx.doi.org/10.1016/j.rfe.2014.07.002

Saini, A., Baharumshah, A. Z., and Law, S. H., 2010. Foreign Direct Investment, Economic Freedom and Economic Growth: International Evidence. Journal of Economic Modelling, 27(5), 1079-1089. doi: http://dx.doi.org/10.1016/j.econmod.2010.04.001

Saini, A., Law, S. H., and Ahmad, A. H., 2010. FDI and Economic Growth: New Evidence on the role of Financial Markets. Journal of Economics Letters, 107(2), 211-213. doi: http://dx.doi.org/10.1016/j.econlet.2010.01.027

Schumpeter, J. A., 1911. The Theory of Economic Development, Cambridge: Harvard University Press. World Bank, 2009. Global Economic Prospects and the Developing Countries 2003. Washington, D.C.: Investing to Unlock Opportunities.

Shuaibu, M. A., and Salisu, A. A., 2013. Foreign Direct Investment, financial depth and output performance in the presence of structural breaks: Evidence for Nigeria. Nigeria Journal of Economic and Social Studies, 55(3).

Ugbaje, D. O., and Ugbaje, H. E., 2014. Empirical Study of Financial Sector Development on Economic Growth in Nigeria (1990-2010). International Journal of Public Administration and Management Research, 2(3), 122-137.

Umoh, O. J., Jacob, A. O., and Chuku, C. A., 2012. Foreign direct investment and economic growth in Nigeria: An analysis of the endogenous effects. Current Research Journal of Economic Theory, 4(3), 53-66.

Wafure, O. G., and Nurudeen, A., 2010. Determinants of foreign direct investment in Nigeria: An empirical analysis. Global Journal of Human-Social Science Research, 10(1).

Zadeh, H. A., and Madani, Y., 2012. Financial market development, FDI and economic growth in Iran. Journal of Basic and Applied Scientific Research, 2(1), 228-230.




DOI: http://dx.doi.org/10.2478/saeb-2018-0007

Refbacks

  • There are currently no refbacks.