Financial development, real sector, and economic growth in Nigeria

By breaking down Nigeria’s real sector into its component parts—agriculture, manufacturing, and services—this research enriches our understanding of the relationship between financial development and real sector economic activities. The Granger-causality method was utilized to establish the direction of causality between financial and real sector growth, and a principal component analysis-based financial development index was developed to measure this relationship. The findings demonstrated that the negative effects of financial development on the real sector are temporary. The supply-leading argument is further supported by the fact that the paper demonstrated bi-directional causation from Nigeria’s financial sector to the real sectors. The study suggests that Nigeria should prioritize changes that strengthen the long-term connection between financial development and the real sector by enhancing the quality of financial services to satisfy the demands of the real sector.