Financial Deepening and Nigeria’s Economic Growth Nexus: An Empirical Investigation

This study investigates the impact of financial inclusion on economic growth in Nigeria over a 40-year horizon from 1985 to 2024. Economic growth is operationalized by the growth rate of gross domestic product (GRGDP), while financial inclusion indicators encompass the growth rate of bank customers (GRBC), the growth rate of access to credit (GRATCR), the growth rate of commercial and microfinance banks in rural areas (GRCBMF), and the monetary policy rate (MPR). Annual time-series data were sourced from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Methodologically, the study employs the Autoregressive Distributed Lag (ARDL) approach to examine the dynamic interactions among the variables. The ARDL bounds test reveals an absence of a long-run cointegrating relationship at the 5% significance level, as the computed F-statistic of 2.041 falls entirely below the lower bound critical value of 2.86. Consequently, the empirical analysis focuses strictly on short-run dynamic interactions in first differences. The study contextually aligns with global development initiatives, particularly Sustainable Development Goals (SDGs) 1 (No Poverty), 8 (Decent Work and Economic Growth), and 10 (Reduced Inequalities). The empirical results reveal that GRBC, GRATCR, and GRCBMF exert positive and statistically significant short-run impacts on GRGDP, indicating that immediate expansions in financial access and formal participation instantly catalyze macroeconomic output. Conversely, the monetary policy rate exhibits a negative and statistically significant short-run relationship with growth, confirming that tight interest rate regimes quickly constrain private sector investment and real output expansion. Based on these findings, the study recommends the aggressive expansion of targeted, short-run inclusive financial frameworks aimed at lowering procedural barriers to immediate credit access, stabilizing rural banking transaction capacities, and mobilizing active digital account ownership. Furthermore, the central bank should strategically maintain a growth-supportive monetary policy stance with moderate policy rates to prevent elevated credit costs from dampening the short-run productive gains of financial deepening in Nigeria.

Financial Inclusion; Economic Growth; Access to Credit; Monetary Policy Rate; Nigeria.

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