Banking Sector Intermediation Development and Growth of a Developing Economy: An Empirical Investigation of Nigeria

Abstract

Abstract In developing economies, banks act as a conduit for the efficient mobilization of financial resources from the surplus sectors for effective allocation to the deficit sectors for productive investment that will in turn lead to economic growth. Thus, the study is aimed at evaluating whether development in the banking sector intermediation process in the form of increase in the number of branches, credit to private sectors, intermediation efficiency and total assets stimulates economic growth in Nigeria during the period of 1987 to 2018. The study employed the Johansen cointegration test, dynamic ordinary least square (DOLS) regression and error correction model in determining the relationship between the variables. The results of the cointegration test confirmed the existence of long-run relationship between banking sector development indicators and economic growth in Nigeria. Whereas, in the short run, only number of bank branches and bank’s total asset have a positive and significant impact on economic growth signifying that much of Nigeria’s superior growth performance is attributed to increase in the number of bank branches and growth in bank’s assets. Credit to private sector has negative and insignificant relationship with economic growth while bank’s intermediation efficiency has positive and insignificant relationship with economic growth.