Impact of Financial Development on Sustainable Economic Growth in Nigeria.

Abstract:

The development of the financial sector in Nigeria has not been very successful, thus limiting access to financial services and impeding the process of sustainable economic growth. Despite the fact that digital banking, mobile payments, and financial innovations have made significant progress, the country still faces difficulties in the areas of financial inclusion and the efficiency of financial intermediation. This study examined the impact of financial development on sustainable economic growth in Nigeria from 1986 to 2023, employing the Vector Error Correction Model to analyze the data that were sourced from the World Development Indicators and the Central Bank of Nigeria Statistical Bulletin. The result of the Johansen cointegration test revealed a long run relationship among the variables. The results revealed that FinTech, financial inclusion, institutional quality, and literacy rate significantly enhanced economic growth, while financial deepening and government expenditure had positive but insignificant impact on sustainable economic growth. On the other hand, urbanization had negative and insignificant impact, while inflation rate exerted negative but significant impact. For Nigeria to achieve sustainable economic growth, it needs to widen access to finance, enhance the quality of institutions, support the use of technology in finance, increase the public's understanding of finance, and support the macroeconomic environment with appropriate monetary and fiscal policies. Furthermore, the development of new financial products, good urban planning and strict regulatory supervision are very necessary to drive financial intermediation efficiency and, consequently, the maximization of the financial sector's growth impact.