Financial Liberalization and Output Growth in Nigeria: Empirical Evidence from Credit Channel

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  • Anthony Orji
  • Onyinye Imelda Anthony-Orji
  • Peter Nwachukwu Mba


This study examined the impact of financial liberalization on output growth in Nigeria over the period of 1986-2011. Employing the Ordinary Least Square method of estimation in its analysis, the empirical findings showed that financial liberalization policy (proxied by credit to private sector/GDP) is negatively related to output growth in Nigeria within the period under review. Thus, this suggests that credits to private sector may have been used for buying and selling of consumables, or diverted to some unproductive ventures, rather than production activities, which would have increased economic growth. Moreover, available evidence shows that the amount of credit to the private sector, as a proportion of the total credit to the economy, is too negligible to contribute positively to economic growth. The results also show that there is unidirectional causality running from output growth (LRGDP) to financial liberalization. This implies that policies promoting economic growth in Nigeria will likely stimulate the gains from financial liberalization in the long-run. The co-integration test reveals that there is a long run relationship among the variables in the model. We therefore conclude that the banking sector should not serve only the government and influential borrowers, thereby leaving genuine private sector borrowers with little or no credit. Further, the government needs to encourage banks to increase their lending to the private sector, especially small and medium enterprises that are ready to invest in the real sector of the economy to enhance output growth. Keywords: Financial liberalization; Credit, Private Sector; Output; Economic Growth JEL Classifications: B26; D14; E44; F43.      


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How to Cite

Orji, A., Anthony-Orji, O. I., & Mba, P. N. (2015). Financial Liberalization and Output Growth in Nigeria: Empirical Evidence from Credit Channel. International Journal of Economics and Financial Issues, 5(1), 297–311. Retrieved from