Financial Structure and Economic Growth: The Nigerian Experience, 1980-2017
Keywords:
Stock Market, Financial Market, Financial Structure, Economic Growth, Vector Error Correction Model.
Abstract
This study investigated the role of financial structure in explaining economic growth dynamics in Nigeria using annual time series from 1981-2017. The study employed the vector error correction model (VECM) in the analysis of the data. As lead up to financial structure and economic growth relationship analysis, the competing theoretical views of bank and market based financial system and economic growth were explored. The result of the study showed that economic growth, financial development variables and the underlying control variables are cointegrated. The result of the economic growth effect of financial development showed that stock market and bank-based have a significant effect on growth. This implies that both bank-based and market-based matter in explaining economic growth dynamics. On the relationship between financial structure and economic growth, the study revealed that economic growth, financial structure and the underlying control variables have a long run relationship. The study also revealed that financial structure which captures the combination of stock market-based and bank-based has a positive significant effect on growth. A significant coefficient of financial structure implies that financial structure matters in explaining growth. Therefore, the study posits that the overall financial structure is the most useful way to assess the financial systems since both bank and stock market system matter in explaining economic growth as against bank-based versus market-based debate. Based on the empirical evidence, the study therefore recommends that there should be continuous holistic reforms of both banking and stock market simultaneously, as the development in one sector has a neglect effect on the other.
References
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Arestis, P., Luintel, A. D. and Luintel, K.B. (2004). Does Financial Structure Matter?The Levy Economics Institute of Bard College, Annandale-on-Hudson, NY.
Ayadi, R., Arbak, E., Ben-Naceur, S. and De-Groen, W. P. (2013). Financial Development, Bank Efficiency and Economic Growth across the Mediterranean. Medpro Technical Report No. 30.
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Boot, A.W.A., Greenbaum, S.Y. and Thakor, A.V. (1993) Reputation and Discretion in Financial Contracting, American Economic Review, Vol. 83, pp.1165–1183.
Boyd, J. H. and Prescott, E. C. (1986). Financial Intermediary-Coalitions. Journal ofEconomic Theory, 38(2): 211-232.
Boyd, J. H. and Smith, B. D. (1998). The Evolution of Debt and Equity Markets in Economic Development. Economic Theory, 12: 519-560.
Caporale, G.C., Howell, G.A. and Soliman, A.M. (2002). Stock Market Development and Economic Growth: The Causal Linkage: Discussion Paper, Centre of Monetary and Financial Economics, South Bank University London.
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Demirguc-Kunt, A. and Levine, R. (2001). Financial Structures and Economic Growth: A Cross-Country Comparison of Banks, Markets and Development, Cambridge, Mass.:MIT Press.
Dickey, D. A. and Fuller, W. A (1979). Distributions of the Estimators for Autoregressive Time Series With a Unit Root. Journal of American Statistical Association, 74, 427–431.
Gerschenkron, A. (1962). Economic Backwardness in Historical Perspective, A Book of Essays. Cambridge, Mass: Harvard University press, Cambridge, MA.
Goldsmith, R. (1969). Financial Structure and Development, New Haven, Yale University Press, CY.
Harris, R. D. F. (1997). Stock Markets and Development: A Reassessment. European Economic Review, 41: 139-146.
Hellwig, M. (1991). Banking, Financial Intermediation and Corporate Finance. European Financial Integration, 35, 63
Hellwig, M. (1998). On The Economics and Politics of Corporate Finance and Corporate Control, Sonderforschungsbereich 504 Publications, University of Mannheim.
Hoshi, T., Kashyap, A.and Scharfstein, D. (1991). Corporate Structure, Liquidity and
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Johansen, S. and Juselius, K.(1991). Testing Structural Hypothesis in a Multivariate Cointegration Analysis. Journal of Econometrics, Vol. 53, p.21
La Porta, R, Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1997). Legal Determinants of External Finance. Journal of Finance, 52: 1131-1150.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. W. (1998). Law and
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Levine, R. (2001). International Financial Liberalization and Economic Growth. Review of International Economics, 9, 688-702
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Levine, R. (2003). More on Finance and Growth: More Finance More Growth? Federal Reserve Bank of St. Louis Review, 85 (4): 31-46.
Levine, R. and Zervos, S. (1998). Stock Markets, Banks and Economic Growth. American Economic Review, 88 (3): 537-558.
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Olofin, S.O and Afangideh, U.J. (2009). Financial Structure and Economic Growth in Nigeria: A Macroeconometric Approach‖, Centre for Econometric and Allied Research(CEAR)
Phillips, P., & P. Perron, P. (1988). Testing For A Unit Root In Time Series Regression. Biometrica, 75, 333–346.
Rajan, R. (1992). Insiders and Outsiders: The Choice Between Informed and Armies Length Debt. Journal of Finance, Vol. 47, No. 4, pp.1367–1400.
Saibu, O M, Bowale, K. I E. and Akinlo, A. E. (2009).Financial Structure and Economic Growth: Empirical Evidence from Nigeria. International Journal of Business and Emerging Markets, Vol. · January, Inderscience Enterprises Ltd.
Security and Exchange Commission Statistical Bulletin (2017), Vol. 1.2, June.
Stiglitz, J. E. (1985). Credit Markets and the Control of Capital. Journal of Money, Credit and Banking, 17 (1): 133-152.
Stulz, R. M. (2000). Financial Structure, Corporate Finance and Economic Growth.International Review of Finance, 1, 11-38.
Stulz, R. M. (2001). Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective. In Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development, eds. A Demirguc-Kunt, R Levine. Cambridge, MA:MIT Press.
Tadesse, S. (2000). Financial Architecture and Economic Performance: International Evidence,Working Paper, University of South Carolina.
Ujunwa, A., Salami, O.P., Nwakoby, I. and Umar, A. H. (2012). Financial Structure and Economic Growth in Nigeria: Theory and Evidence. International Journal of Economics and Finance, Vol. 4, No. 4; April. Published by Canadian Center of Science and Education
Weinstein, D. E. and Yafeh, Y. (1998). On the Costs of a Bank-Centered Financial System: Evidence from the Changing Bank Relations in Japan. Journal of Finance,53: 635-672.
Wenger, E. and Kaserer, C. (1998). The German System of Corporate Governance: A Model Which Should not be Imitated.” In S.W. Black and M. Moersch (eds.), Competition and Convergence in Financial Markets: The German and Anglo-American Models. New York: North Holland.
World Bank (2001). Finance for Growth: Policy Choices in a Volatile World. A World Bank Policy Research Report. Washington D.C.: World Bank.
World Development Indicators (WDI).
Arestis, P., Demetriades, P. and Luintel, K. (2001). Financial Development and Economic Growth: The Role of Stock Markets. Journal of Money, Credit, and Banking, 33(1):16-41.
Arestis, P., Luintel, A. D. and Luintel, K.B. (2004). Does Financial Structure Matter?The Levy Economics Institute of Bard College, Annandale-on-Hudson, NY.
Ayadi, R., Arbak, E., Ben-Naceur, S. and De-Groen, W. P. (2013). Financial Development, Bank Efficiency and Economic Growth across the Mediterranean. Medpro Technical Report No. 30.
Beck, T. and Levine, R. (2002).Stock Markets, Banks and Growth: Panel Evidence.NBER Working Paper Series No. 9082. Cambridge, Mass.: National Bureau of EconomicResearch.
Bhide, A. (1993). The Hidden Costs of Stock Market Liquidity. Journal of FinancialEconomics, 34(1): 1-51.
Boot, A.W.A., Greenbaum, S.Y. and Thakor, A.V. (1993) Reputation and Discretion in Financial Contracting, American Economic Review, Vol. 83, pp.1165–1183.
Boyd, J. H. and Prescott, E. C. (1986). Financial Intermediary-Coalitions. Journal ofEconomic Theory, 38(2): 211-232.
Boyd, J. H. and Smith, B. D. (1998). The Evolution of Debt and Equity Markets in Economic Development. Economic Theory, 12: 519-560.
Caporale, G.C., Howell, G.A. and Soliman, A.M. (2002). Stock Market Development and Economic Growth: The Causal Linkage: Discussion Paper, Centre of Monetary and Financial Economics, South Bank University London.
Cental Bank of Nigeria Statistical Bulletin, Various Issues.
Demirguc-Kunt, A. and Levine, R. (1996). Stock Markets, Corporate Finance and Economic Growth: An Overview, World Bank Economic Review, Vol. 10, No. 2, Pp.223–239.
Demirguc-Kunt, A. and Levine, R. (2001). Financial Structures and Economic Growth: A Cross-Country Comparison of Banks, Markets and Development, Cambridge, Mass.:MIT Press.
Dickey, D. A. and Fuller, W. A (1979). Distributions of the Estimators for Autoregressive Time Series With a Unit Root. Journal of American Statistical Association, 74, 427–431.
Gerschenkron, A. (1962). Economic Backwardness in Historical Perspective, A Book of Essays. Cambridge, Mass: Harvard University press, Cambridge, MA.
Goldsmith, R. (1969). Financial Structure and Development, New Haven, Yale University Press, CY.
Harris, R. D. F. (1997). Stock Markets and Development: A Reassessment. European Economic Review, 41: 139-146.
Hellwig, M. (1991). Banking, Financial Intermediation and Corporate Finance. European Financial Integration, 35, 63
Hellwig, M. (1998). On The Economics and Politics of Corporate Finance and Corporate Control, Sonderforschungsbereich 504 Publications, University of Mannheim.
Hoshi, T., Kashyap, A.and Scharfstein, D. (1991). Corporate Structure, Liquidity and
Investment: Evidence from Japanese Industrial Groups. Quarterly Journal of Business and Economics, 106: 678-709.
Johansen, S. and Juselius, K.(1991). Testing Structural Hypothesis in a Multivariate Cointegration Analysis. Journal of Econometrics, Vol. 53, p.21
La Porta, R, Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1997). Legal Determinants of External Finance. Journal of Finance, 52: 1131-1150.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. W. (1998). Law and
Finance. Journal of Political Economy, 106(6): 1113-1155
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, Vol. 35, No. 2, pp.688–726.
Levine, R. (2001). International Financial Liberalization and Economic Growth. Review of International Economics, 9, 688-702
Levine, R. (2002) Bank Based or Market Based Financial System Which is Better?, Working Paper Carlson School University of Minnesota.
Levine, R. (2003). More on Finance and Growth: More Finance More Growth? Federal Reserve Bank of St. Louis Review, 85 (4): 31-46.
Levine, R. and Zervos, S. (1998). Stock Markets, Banks and Economic Growth. American Economic Review, 88 (3): 537-558.
Luintel, K. B. and Khan, M. (2002). Are International R&D Spillovers Costly for the U.S.? Discussion Paper, Department of Economics and Finance: Brunel University.
Luintel, K. B., Khan, M., Arestis, P. and Theodoridis, K.(2008). Financial Structure and Economic Growth. Cardiff Economics Working Papers/ Cardiff Business School Working Paper Series, E2008/3.
Merton, R. C. (1995). A Functional Perspective of Financial Intermediation. Financial Management, 24: 23-41.
Merton, R. C. and Bodi, Z. (1995). A Conceptual Framework for Analysing the Financial Environment. In D.B. Crane et al (eds.), The Global Financial System: A Functional Perspective. Boston, Mass.: Harvard Business School.
Mork, R. and Nakkamura, M. (1999). Banks and Corporate Control in Japan. Journal of Finance, 54: 319-340.
Olofin, S.O and Afangideh, U.J. (2009). Financial Structure and Economic Growth in Nigeria: A Macroeconometric Approach‖, Centre for Econometric and Allied Research(CEAR)
Phillips, P., & P. Perron, P. (1988). Testing For A Unit Root In Time Series Regression. Biometrica, 75, 333–346.
Rajan, R. (1992). Insiders and Outsiders: The Choice Between Informed and Armies Length Debt. Journal of Finance, Vol. 47, No. 4, pp.1367–1400.
Saibu, O M, Bowale, K. I E. and Akinlo, A. E. (2009).Financial Structure and Economic Growth: Empirical Evidence from Nigeria. International Journal of Business and Emerging Markets, Vol. · January, Inderscience Enterprises Ltd.
Security and Exchange Commission Statistical Bulletin (2017), Vol. 1.2, June.
Stiglitz, J. E. (1985). Credit Markets and the Control of Capital. Journal of Money, Credit and Banking, 17 (1): 133-152.
Stulz, R. M. (2000). Financial Structure, Corporate Finance and Economic Growth.International Review of Finance, 1, 11-38.
Stulz, R. M. (2001). Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective. In Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development, eds. A Demirguc-Kunt, R Levine. Cambridge, MA:MIT Press.
Tadesse, S. (2000). Financial Architecture and Economic Performance: International Evidence,Working Paper, University of South Carolina.
Ujunwa, A., Salami, O.P., Nwakoby, I. and Umar, A. H. (2012). Financial Structure and Economic Growth in Nigeria: Theory and Evidence. International Journal of Economics and Finance, Vol. 4, No. 4; April. Published by Canadian Center of Science and Education
Weinstein, D. E. and Yafeh, Y. (1998). On the Costs of a Bank-Centered Financial System: Evidence from the Changing Bank Relations in Japan. Journal of Finance,53: 635-672.
Wenger, E. and Kaserer, C. (1998). The German System of Corporate Governance: A Model Which Should not be Imitated.” In S.W. Black and M. Moersch (eds.), Competition and Convergence in Financial Markets: The German and Anglo-American Models. New York: North Holland.
World Bank (2001). Finance for Growth: Policy Choices in a Volatile World. A World Bank Policy Research Report. Washington D.C.: World Bank.
World Development Indicators (WDI).
Published
2019-05-22
How to Cite
Nkoro, E., & Uko, A. K. (2019). Financial Structure and Economic Growth: The Nigerian Experience, 1980-2017. American Economic & Social Review, 5(1), 33-48. https://doi.org/10.46281/aesr.v5i1.261
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2019 Emeka Nkoro ,Aham Kelvin Uko
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