STRUCTURAL ANALYSIS OF THE NIGERIAN FINANCIAL SYSTEM IN THE POST LIBERALIZATION ERA AND ITS IMPACT ON ECONOMIC GROWTH

TABLE OF CONTENTS

Title page

Abstract

Table of Contents

CHAPTER ONE

1.0       INTRODUCTION

1.1       Background to the Study

1.2       Statement of the Problem

1.3       Objectives of Study

1.4       Justification for the Study

1.5       Scope and Limitation of the Study

1.6       Organization of Study

CHAPTER TWO

2.0       LITERATURE REVIEW

2.1       Conceptual Framework

2.1.1.   Financial Structure

2.1.2    System-Wide Indicators

2.1.3.   Breadth of Financial System

2.2.      Structure of Nigerian Financial System

2.3       Structure of Nigerian Financial Market

2.4       An Overview of Financial Liberalization in Nigeria

2.5       Theoretical Literature Review

2.5.1    Some Theories of Financial Structure

2.5.2    Some Theories of Growth

2.6       Empirical Literature Review

CHAPTER THREE

3.0       METHODOLOGY

3.1       Framework for Methodology

3.2       Research Hypothesis

3.3       Empirical Framework

3.4       Model Specification

3.5       A priori Expectation

3.6       Diagnostic Tests

3.7       Estimation Techniques

3.8       Data and Sources of Data

CHAPTER FOUR

4.0       PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS

4.1       Presentation and Analysis of Diagnostic Tests Results

4.1.1.   Stationary Test Results

4.1.2    Evaluation of the Forecasting Power of the Model

4.2.      Presentation and Analysis of estimated Models

4.3.      Major Findings of the Study

CHAPTER FIVE

5.0       SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1       Summary of the Study

5.2       Conclusion of the Study

5.3       Recommendations

References

Appendices

Abstract

This study assessed the impact of the liberalization of the Nigerian financial system on the structural changes witnessed in the system as a result of liberalization as well as the impact of the resulting structural change on economic growth using a three stage least in a system of three endogenous variables. System of equations was used to capture the transmission mechanism of financial liberalization as contained in the McKinnon and Shaw financial repression hypothesis with annual data from 1986 to 2012. The study found that the Nigeria financial system had undergone major changes in term of both nature and composition. Liberalization further helped in creating a diversified financial system which is vibrant and robust, though deposit money banks still dominate the sector in term of asset base and branch network. Also, this study found that financial structure has a positive impact on savings as well as on economic growth. In addition, both capital market-base and bank-based financial structure have similar impact on both investment and growth thereby relegating the capital market-base versus bank-based argument to the background and favour of the financial market-based view. Therefore, this study recommends that the liberalization of the Nigerian financial system should be sustained and economic policies should be directed at enhancing growth of the financial system.

CHAPTER ONE

INTRODUCTION

1.1.         Background to the Study

Several arguments have been put forward about ways of improving the standard of living through a sustained growth process. This development has elicited paradigm shift in economic growth strategies and policies especially in developing economics and new frontiers were being explored to achieve economic growth.

The important role of finance in the process of economic growth and development was brought to lime light by the works of Bagehot (1873) and Schumpeter (1911). They pointed out the productivity and growth enhancing effects of services provided by a developed financial sector. They posit that the industrial revolution in England was the result of a functioning financial system that was instrumental in mobilizing and allocating long-term capital to the productive enterprises of the country. They argued that financial intermediaries play a crucial role in fostering technological innovation and economic growth by providing basic services such as mobilizing savings, monitoring managers, evaluating investment projects, managing and pooling risks, and facilitating transactions.

The seminal works of McKinnon (1973) and Shaw (1973) supported Schumpeter‟s view of promoting the development of financial sector to achieve economic growth. They criticized the financial repressionists‟ view adopted by many governments in developing countries in the early 1970s. The traditional justification for financial repression is that it is presumed to increase the rate of economic growth. This argument is based on the assumption that money and real assets are perfectly substitutable, that increasing returns in real asset markets relative to money market instruments will induce a change in investor behaviour, so shifting investment out of money market into capital investment. An important implication is that setting interest rate ceilings will reduce the rate of return on financial assets, and induce a.....

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