Financial development, trade openness and economic growth in Nigeria: A granger causality approach

The causal relationship between financial development and economic growth in Nigeria from 1980 2009 is examined in this paper. Financial development is decomposed into ratio of broad money supply to GDP and the ratio of private sector credit to GDP. The empirical results showed that GDP granger causes both money supply ratio and private sector ratio. Conversely, GDP follows foreign direct investment and inflation and there is no causal relation between trade openness and GDP. It is therefore concluded that the demand-following hypothesis is valid for Nigeria. The paper recommended policies that promote the inflow of foreign direct investment and moderate inflation for economic growth to be sustained.