International Science Index


9996702

The Link between Money Market and Economic Growth in Nigeria: Vector Error Correction Model Approach

Abstract:

The paper examines the impact of money market on economic growth in Nigeria using data for the period 1980-2012. Econometrics techniques such as Ordinary Least Squares Method, Johanson’s Co-integration Test and Vector Error Correction Model were used to examine both the long-run and short-run relationship. Evidence from the study suggest that though a long-run relationship exists between money market and economic growth, but the present state of the Nigerian money market is significantly and negatively related to economic growth. The link between the money market and the real sector of the economy remains very weak. This implies that the market is not yet developed enough to produce the needed growth that will propel the Nigerian economy because of several challenges. It was therefore recommended that government should create the appropriate macroeconomic policies, legal framework and sustain the present reforms with a view to developing the market so as to promote productive activities, investments, and ultimately economic growth.

References:
[1] Adebiyi, M.A. (2005). Capital Market Performance and the Nigerian Economic Growth. In: Issues in Money, Finance and Economic Management in Nigeria: Essays In Honour of Professor Obasanmi Olakanpo, Edited by Fakiyesi, O & O Akano (eds.), University of Lagos Press, Section 1, Chapter 5, Pp 146- 176.
[2] Adeoye, B.W (2007) Financial Sector Development and Economic Growth: The Nigerian Experience. Paper presented at the Nigerian Economic Society 2007 Annual Conference, Ibadan.pp.43-70.
[3] Agha, A. I., Ahmed, N., Mubarak, Y. A. & Shah, H. (2005). Transmission Mechanism of Monetary Policy in Pakistan. SBP Research Bulletin, 1(2), pp.1-10.
[4] Ajakaiye, Olu (2002). Banking Sector Reforms and Economic Performance in Nigeria. In Howard Stein, Olu Ajakaiye and Peter Lewis (Ed) (2002) Deregulation and Banking Crisis in Nigeria: A Comparative Study (Palgrave, New York) Chapter 5. Pp. 20-40.
[5] Anyanwu, J.C (1996) Monetary Economics. Lagos, Heinemann Educational Books (Nigeria) Plc. 247–274.
[6] Atje, R and Jovanovic, B. (1993) Stock market and Development: European Economic Review 37: 632-640.
[7] Dabwor, T. D. (2009). The Nigerian Banking System and the Challenges of Financial Intermediation in the Twenty First Century. Jos Journal of Economics, Vol.4, No.1 Pp. 93-108.
[8] Ebhodaghe, J.U. (1996) Competition and Consolidation in the Nigerian Banking sector: A Regulator’s perspective. Paper presented at the 1996 Budget Seminar organized by the Arthur Anderson, Lagos. PP.1-10.
[9] Ekpo, H.A (2008) The Nigerian Economy: Is it at the Crossroads? Presidential address delivered in Nigerian Economic Society, Abuja. Pp.1-10.
[10] Gelbard, E, &Leite, P. S. (1999). Measuring Financial Development in Sub-Saharan Africa. IMF Working Paper, 99(105), Pp.1-28.
[11] Greenwood, J. and Jovanovic, B. (1990) Financial Development Growth and the Distribution of Income: Journal of Political Economy, 98, pp.1076-1107.
[12] Grossman, G and Helpman, E. (1991). Quality Ladders in the theory of growth. Review of Economic Studies, 58, 43-61.
[13] Goldsmith, R. W. (1969) Financial Structure and Development. New Haven, Conn Yale University Press Pp.1-30.
[14] Igbatayo, S. (2011) The Challenges of the Global Economic Crises and Nigeria’s Financial Markets Stability. Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 2(6), pp.497-503.
[15] Khan, M. S. & Senhadji, A. S. & Smith, Bruce D., (2006). Inflation and Financial Depth, Macroeconomic Dynamics, Cambridge University Press, 10(02), Pp 165-182.
[16] King, R.G and Levine, R. (1992) Finance and Growth, Schumpeter might be right. Quarterly Journal of Economics, 108(3), pp.717-737.
[17] Levine, R. (1996) "Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature 35: 688-726.
[18] Levine, R (1999). Law, Finance, and Economic Growth. Journal of Financial Intermediation 8 (1-2): 8-35.
[19] Levine, R. (2004) "Bank-based or Market-based Financial Systems: Which is better?” Journal of Financial Intermediation 11 (4): 398-428.
[20] Levine, R. and Zervos, S. (1996) Financial Development and Economic Growth Views and Agenda. Journal of Economic Literature 35, 688-726
[21] Lucas, R.E (1988) On the Mechanics of Economic Development; Journal of monetary Economics, 22, pp.3-42.
[22] McKinnon, R.I (1973) Money and Capital in Economic Development; Washington D.C. The Bookings institution. Pp.1-20.
[23] Mordi C.N.O. (2010). The Link between the Financial (Banking) Sector and the Real Economy. Central Bank of Nigeria. Economic and Financial Review, 48(4) PP.9-24.
[24] Nwosu, C P and Hamman, H. M (2008). The Nigerian Money Market: Issues and Challenges: Bullion, Publication of the Central Bank of Nigeria, 32(2), pp. 51-66.
[25] Obstfeld, M. (1995) Risk Diversification and Growth; the America Economic Review 84(5), pp. 1310-1329.
[26] Omoruyi, S.E (1991) The Financial sector in Africa Overview and Reforms in Economic Adjustment Programmes.CBN Economic and Financial Review, 29(2), Pp.110-124.
[27] Onwioduokit, E. (2007). Financial Sector Development and Economic Growth in Nigeria. Paper presented at the Nigerian Economic Society, PP.71-96.
[28] Onwioduokit, E and Adamu, P. (2005). Financial Liberalization in Nigeria: An Assessment of Relative Impact; Paper presented at the Nigerian Economic Society, Pp 20-37.
[29] Romer, P.M. (1986) Increasing Returns and Long-Run Growth. Journal of political Economy, 94(5) pp. 1002-37.
[30] Saibu, M. O., Wakeel, A. I. & Nwosu, P. I. (2009). Energy Prices and Macroeconomic Performance. Pp.1-10.
[31] Schoar, A. (2009). Lin Roundtable: Scale Matters. Free Exchange, Economist.com blogs Available: http://www.economist.com/blogs/ freeexchange/lin_roundtable. http://en.wikipedia.org/wiki/Economy of Nigeria 2012.
[32] Schumpeter, J.A. (1934). The Theory of Economic Development: Cambridge M.A, Harvard University Press. Pp.1-27.
[33] Senbet, L.W & Otchere, I. (2005). Financial Sector Reforms in Africa: Perspectives on Issues and Policies. Annual World Bank Conference on Development Economics (ABCDE), Dakar, Senegal. Pp. 1-61.
[34] Shan, J. Z. & Morris, A. (2002). Does Financial Development ‘Lead Economic Growth? International Review of Applied Economics, 16(2), 153–168.
[35] Shaw, E. (1973) Financial Deepening in Economic Development: New York, Oxford University press. Pp.1-20.
[36] Sobodu, O. and Sobodu, A (1999) Effects of stabilization Securities policy on Banking portfolio Behavior in Nigeria, Development Policy Centre Research Paper, Nigeria.Pp.1-10.
[37] Solow, R. M (1957). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, pp. 47-65.
[38] Soludo, C. (2008) Beyond Banking Sector Consolidation in Nigeria. Paper presented in a Conference in London. Pp.1-20.
[39] Soyibo, A. Alashi, S O and Ahmad, M.K (1997). The extent and effectiveness of Bank supervision in Nigeria AERC Harere Zimbabwe. Pp.1-23.
[40] Thoma, M. (2009). Lin Roundtable: Small Banks Need Help. Free Exchange, Economist.com blogs. Available: http://www.economist.com/ blogs/freeexchange/lin_roundtable.
[41] Zingalas, L. (2001). Financial Dependence and Growth. The American Economic.