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NON-BANK FINANCIAL INSTITUTIONS VERSUS ECONOMIC GROWTH: THE APPULSE IN NIGERIA
Abstract
Banks have so dominated the Nigerian financial system that the importance of Non-bank financial institutions (NBFIs) in economic development has been played down. This paper therefore investigated the impact of NBFIs on economic growth and also tested the competing finance-growth hypotheses in Nigeria. Quarterly time series data from 1992 to 2014 sourced from Central Bank of Nigeria statistical bulletin 2014 were used. Cointegration and Vector Error Correction (VEC) model were estimated. The result showed the presence of long run relationship between NBFIs and economic growth. The result also showed a positive but insignificant relationship between NBFIs and economic growth. The VEC Granger Causality/Block Exogeneity Wald Test was also conducted. The result showed that economic growth Granger cause development of NBFIs both in the short and long run.
This supports the “demand following” hypothesis. Conclusion reached is that as the Nigerian economy continues to grow, it will spur the development of NBFIs in the long run, making them take the centre stage in funds allocation. The paper therefore recommends the creation of an enabling environment (through tax holidays and concessions) to promote the rapid development of the Non-Bank financial industry. This would attract investors to the sector and also improve the asset base of the industry. The CUSUM and CUSUM square tests prove the validity of the estimated model.
Key words: Non-Bank Financial Institutions, Vector Error Correction Model, Economic growth, Nigeria.