The Effect of the Financial Liberalisation on Economic Growth

Abstract

This study examines the relationship between financial liberalisation and economic growth in Nigeria. It tends to know the contributions of the liberalisation in the Nigerian economy and whether the sector has been able to achieve its main objective of liberalization since the sector was highly regulated leading to financial disintermediation which retarded the growth of the economy. It also seeks to show whether the achievement will continue to increase the development of the economy. The Vector Error Correction Model was employed, which was conducted after ensuring the stationarity and existence of cointegration of the variables. The financial liberalization development was proxied by ratio of liquidity that is liabilities to GDP, real interest rate, and total deposit while the economic growth was measured by the real GDP. The study shows that the co-integration test results showed that long run equilibrium conditions are only maintained between the variables when all the exogenous variables are used together; between the RGDP and M2GDP; and between RGDP and NB when regressed separately. It also shows that all the variables are statistically insignificant. The overall statistic shows that the independent variables were able to explain only 7 percent variation in the dependent

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