Effect of Financial Sector Reforms on Economic Growth in Nigeria

Abstract

The study examines the effect of financial (banking) sector reforms on economic growth in Nigeria from 1986-2013. Specifically, the study evaluates the extent to which bank capitalization (CAP) and interest rate (INTD) have affected economic growth in Nigeria. Secondary data were generated from various issues of Central Bank of Nigeria Statistical Bulletin, and the World Development Indicators of the World Bank. Ordinary Least Square (OLS) regression was adopted to test the two hypotheses formulated for the study. The study revealed that bank capitalization (CAP) has significantly affected economic growth in Nigeria and interest rate (INTD) has also affected economic growth significantly, though at long run. The study recommends that the CBN should build and maintain a well-articulated and properly implemented banking reforms such that will stimulate savings through high real deposit rate and lending rate which will result in financial deepening and thus, economic growth.

Keywords: Banking Sector Reforms, Bank Capitalization, Interest Rate Deregulation, Economic Growth