FINANCIAL DEEPENING AND THE NIGERIAN FINANCIAL SYSTEM.

Abstract

The ability of financial institutions in mobilizing efficient savings for the purpose of investment in a country is financial deepening.This study seeks to examine the effect of financial deepening on Nigerian Financial system.Specifically,the study examine the effect of money supply to gross domestic product on financial savings to gross domestic product in Nigeria, ascertain the effect of private sector credit to Gross Domestic Product ratio on financial savings to gross domestic product in Nigeria,investigate the effect of market capitalization to Gross Domestic Product ratio on financial savings to gross domestic product in Nigeria and ascertain the effect of all share index on financial savings to gross domestic product in Nigeria.The Expo-Facto design was adopted because the data are secondary data extracted from the Central Bank of Nigerian statistical bulletin. Econometric techniques, including Augmented Dickey-Fuller for unit root tests, Granger causality test and Ordinary Least Square (OLS) regression analysis was used to test the four hypotheses.The data used were collected from the Central Bank of Nigeria Statistical Bulletin.The study revealed that broad money supply (M2/GDP),credit to private sector to GDP,market capitalization to GDP ratio and all share indexes has positive and significant effect on financial savings to gross domestic product (FSGDP) within the period under study. The study therefore,concludes that financial deepening have positive and significant effect on financial system and have enhanced the effective and efficient mobilization of financial resources from the surplus to the deficit unit for investment outlet in Nigeria financial system.The paper recommends amongst other that:Directors of economic managers should focus on money stock,economic velocity and market capitalization which the result indicates are yet to make significant impact on financial system in Nigeria.