Effect of Financial Development on Macro-Economic Variables in Nigeria

There has been an increasing build-up of studies that focus on suspected relationship between developments in Finance and economic development variables. While some studies sought to establish the causation between the two variables, some others focus on the aspect or extent of development in Finance, or exact variables in Finance that could ignite growth in the economic sector. Yet some others examine those macro-economic variables, which financial growth could ignite their performance. Undoubtedly, the quest to proffer logical answer to the fundamental economic development question on why countries grow at different rates has undoubtedly digressed researchers to further investigate the causal factors of influence among growth variables in finance and the real economy. Moreover, dearth of studies on correlation that exists amidst real and financial growth variables in Nigeria necessitated this study. The paper aims at investigating the impact and trend of developments in the finance and real sectors of the Nigerian economy. The study examines the long-run effects and two potential causal variables of influence on economic development; using Vector Error Correction Model. It finds that growth effect of finance is bias to choice of macro-economic variables regressed. The results suggest that the influence of growth in finance on macro-economic variables depends on measures used to proxy for financial growth.