Multivariate causality between financial depth and economic growth in Nigeria

Abstract

The study adopts the multivariate VECM to investigate the causality between financial depth and economic growth in Nigeria from 1971 to 2008. The results suggest that financial depth and economic growth have a stable long-run relationship. The study supports the demand-following hypothesis for the banking sector’s private sector credit and real broad money supply; while it supports the supply-leading hypothesis for loan deposit ratio and bank deposit liabilities. The major finding is that the financial depth indicator used has great influence on the causal inference. This result validates Agu and Chukwu (2008) which employed the Toda and Yamamoto (1995) causality testing approach.