Financial Intermediation and Economic Growth in Nigeria: Long Run Analysis and Test of Demand Following Hypothesis (Nigerian Experience)

This paper set out to empirical investigate the relationship between financial intermediation and economic growth in Nigeria using time series data spanning from 1986 to 2014. The output of our empirical analysis reflect that all the data used in the process of research are stationary after first differencing in the order of 1 (1), the output of the OLS shows that M2 and IIR has a positive and significant influence on the growth of the Nigeria economy while other variable are negatively significant. Mine while, the result of the granger causality test shows that there exist a causality flow between RGDP, IIR and, PSC with causality flowing from RGDP to financial Intermediation indicators (IRR and PSC) respectively. Judging by the output of this research, it show that in the Nigeria context, economic growth determine financial sector development. This suggest that financial Intermediation activities in Nigeria is demand following while the economy is leading. The economic implication of this is that the financial sectors out-rightly rely on the growth of the economy.