Financial Market Funds and Economic Growth Nexus in Nigeria: A Cointegration Perspective with Lessons

Informed by the need to evaluate the prevailing interrelationships between the structure of financial market funds and Nigeria’s economic growth, this study employs secondary data sourced from the Central Bank of Nigeria, Nigerian Stock Exchange and the National Bureau of Statistics over the period 1981 to 2011 (31 yrs). The Augmented Dickey – Fuller, (ADF), Johansen’s Cointegration, Error Correction Model (ECM) and Granger Causality tests were executed. The results indicate significant long-run relationship between Nigeria’s GDP and the study’s financial market components – Government Securities, Bonds, Equities and Bank Credits to Private sector. The Error Correction Model indicates a coefficient of determination (R2) of 69.08% with an F-statistic value of 699.63 which is significant at 0.00 level. The Granger Causality results indicate bi-directional causalities between GDP and Government Securities, Equities and Bonds, as well as bonds and credit to private sector. However, Uni-directional causalities  are observed between Bonds and GDP, Equity and GDP, Bonds and Government securities, Credits to Private Sector and Government Securities as well as Equity and Credits to Private Sector. For the observed unidirectional causalities, causality flows from GDP to Bonds, Bonds to Government Securities, Government Securities to Credits to Private Sector and also, from Equity to Credits to Private Sector. No significant causalities are observed between Bank Credit to Private Sector and GDP as well as between Equity and Government Securities. The study concludes that; (i) majority of the financial markets sectors largely exist to service the economy (demand following roles) in place of supply leading roles, (ii) there prevails significant level of disconnect  between government and private sector programs in Nigeria as indicated by insignificant causality between equity and government securities as well as between GDP and bank credits to the private sector. Urgent policy actions to curtail the observed disconnections are recommended to enable the financial market components function coherently and play more creative roles in the economy. Keywords: Bonds, Equity, Government Securities, Credit to Private Sector, Economic Growth.

Private Vs Public Sector Bank Credits And Economic Growth Nexus In Nigeria: Where Does Efficacy Rest?

Demetriades and Hussien (1996), Levine and Zervous (1998) as well as Crowley (2008) argue that bank credits allocated to the private sector of an economy are more productive than those allocated to the public sector because they are disbursed under more stringent credit conditions. This study basically, attempts to evaluate the comparative efficacies of bank credits allocated to the private and public sectors of Nigeria’s economy in relation to economic growth. The Augmented Dickey Fuller (ADF), Johansen’s cointegration, error correction model and the standard pair-wise Granger Causality tests were employed in processing data sourced from Central Bank of Nigeria’s Statistical Bulletin over the period 1981 to 2011. The results reveal a significant long run relationship between credits allocated to the public and private sectors of the economy and Nigeria’s gross domestic product. The Granger Causality tests indicate significant bi-directional causality only between credits to private and government sectors. Significant unidirectional causalities are observed between gross domestic product and credits to both private and public sectors with causality flowing from GDP to those economic sectors. The study concludes that irrespective of the prevailing long run relationship between Nigeria’s economic growth and bank credits to the private and public sectors of the economy;(i) Nigerian banks largely play demand-following roles, (ii) None of the bank credits to the government and private sectors is efficient as they two largely fail to promote the economy. Measures including creation of more capital market debt products, which will enable the government source more long term development funds and reduce pressure on operating banks, as well as replication of this study in other economic settings to facilitate understanding of country specifics are recommended for implementation. Keywords: Public Sector Credit, Private Sector Credit, Economic Growth,  Efficacy

Stock Market Performance, Bank Credits and Economic Growth in Nigeria: A Granger Causality Perspective

Given growing interest in the functioning of the broad segments of the financial market and their interrelationships with the economy, this study consequently, evaluates the extent and directions in which the key variables of stock market capitalization, bank credits and economic growth do promote and/or support themselves in Nigeria. The augmented Dickey Fuller (ADF) and standard Granger Causality tests were executed on employment of secondary data sourced from the Central Bank of Nigeria and the Nigerian Stock Exchange over the period 1971-2012 (42 yrs). The results confirm evidence of one significant unidirectional causality which runs from stock market capitalization to bank credits among all the paired variables. Consequently, the study recommends intensified efforts in the development of financial market products, further relaxation of stock market requirements for corporate quotation and securities listing, as well as enhanced enforcement of legal contracts to strengthen the operations of Nigerian financial market institutions and practice in Nigeria. Key words: Market Capitalization, Bank credits, Economic growt

Microcredit Operations and Human Development Nexus in Nigeria: A Multi-Sectoral Analysis

Motivated by the need to evaluate the extent to which microcredits disbursed to classified sectors of economic activity as utilized by the active poor do influence Nigeria’s human development index in both the short and long run, this study employs published data obtained from Central Bank of Nigeria over the period 1992 to 2016 (25 years). Estimation techniques involving Stationarity, Multiple Regression, Johansen’s Cointegration and Vector Error Correction tests were employed. While the Cointegration results indicate significant long run relationship among the study variables, the Multiple Regression and Vector Error Correction estimates both point to microcredits allocated to mining/quarrying, real estate/construction and transport/general commerce sectors as the sectoral microcredits that significantly influence Nigeria’s human development index both in the short and long terms respectively. The study concludes that microcredits allocated to mining/quarrying, real estate/construction and transport/general commerce are the sectoral microcredit allocations which are important in predicting Nigeria’s human development index. On the whole, it is recommended that (i) operating microcredit institutions should increase their quantum of lending to the mining/quarrying, real estate/construction and transport/general commerce sectors (ii) Nigerian microcredit institutions should be encouraged to invest more in development of microcredit and deposit products in order to enhance their sectoral lendings and consequently Nigeria’s human development index. Keywords: Microcredit, Sectoral Credit, Human Development Index

The Causal Influence of Nigeria’s Stock Market Performance On New Issues: An Empirical Examination Of Bhole’s Contentions

Bhole (2006) contends that the bulk of recent studies including World Bank publications overwhelmingly, stress the role of the stock market in maximizing speculative returns for investors and corporate operators, while completely sidetracking the vital issue of the extent to which the stock market at the other extreme, also helps the corporate sector in raising fresh capital (New Issues). This study examines consequently, the nature and direction of prevailing causal relationships between Nigeria’s Stock Market annual capitalization and new issues in order to evaluate the extent to which capital market performance empirically promotes corporate issuance of new securities in Nigeria. The unit root and standard Granger Causality tests were executed on employment of published data from the Nigerian Stock Exchange over the period, 1970 – 2011, (42 years). The results indicate stationarity of the time series variables and significant bi directional causality between stock market capitalization and new issues thus, providing strong evidence in support of Bhole’s contentions with respect to Nigerian data. Replication of this study in every market setting is strongly recommended in order to understand country specifics and confirm the extent to which Bhole’s valid theoretical contentions are empirically supported and/or contradicted in each circumstance. Keywords: Market Capitalization, New Issues, Causality, Stock Market

How Far Do Banks’ Intermediation Functions Influence Economic Growth In Nigeria?

Motivated by the need to examine in the light of recent data, the nature of interrelationships between banks’ intermediation functions and Nigeria’s economic growth, this study employs time series data which were obtained from Central Bank of Nigeria’s Statistical Bulletin over the period 1981 to 2015. Stationarity, Multiple Regression, Johansen’s Cointegration, Error Correction Estimates and Pair-Wise Granger Causality tests were employed. The long run results represent improvements over the short-run estimates with credit to private sector and total deposit liabilities generated by Nigerian banks being causally dependent on her GDP, while credit to government sector was found  to be operating independent of the economy. In the light of the fact that the results represent an improvement over previous studies, it was  argued that greater adherence to market discipline Post 2005/06 Banking Sector Consolidation programme in Nigeria might have contributed to the improved results. Consequently, the study recommends sustenance of those adopted market disciplines, as well as more stringent enforcement of credit contracts to enable the operating banks recover more non-performing credits and invest same to enhance lendings to very efficient units in the private and public sectors of the Nigerian economy.   Keywords: Bank Deposit Liabilities, Credits to Private Sector, Credits to  Government Sector, Financial Intermediation, Economic Growth

Foreign Direct Investment Inflows And Economic Performance In A Developing Economy: Nigerian Evidence

Motivated by the need for a classified and comparative analysis of the effects of oil related and non-oil related foreign direct investments on Nigeria’s economic growth, this study evaluates secondary data obtained from Central Bank of Nigeria's Statistical Bulletin over the period 1981 to 2016 (36 years). Statistical techniques, which include Stationarity, Multiple Regression, Johansen's Co-integration, Error Correction Estimations and Granger Causality tests, were employed to evaluate the prevailing inter-relationships as well as the extent to which these classified foreign direct investment inflows do promote, and/or support Nigeria's economic growth. On the whole, the results of this study show that irrespective of the prevalence of significant long run relationship among the study variables, both the short and long run estimations as indicated by the multiple regression and error correction estimates, provide compelling evidences of significant sensitivities of Nigeria’s economy to only variations in non-oil related FDI inflows. However, the Granger Causality test results indicate significant prevalence of two unidirectional causalities between Nigeria’s GDP and both oil and non-oil related FDI inflows with Causality flowing from oil and non-oil related FDI to the GDP in both cases. Because of the greater sensitivity of Nigeria’s GDP to non-oil related FDI inflows compared to oil related FDI inflows, the study concludes that non-oil related FDI inflows are more beneficial to Nigeria's economy compared to oil related FDI inflows. Consequently, it is recommended that both Nigeria's private sector entrepreneurs and the government should make further efforts to market and attract more foreign direct investors in the non-oil related sector of the Nigerian economy in order to maximize business opportunities in the non-oil sector of Nigeria’s economy as well as aid diversification in Nigeria’s economy. Keyword: Oil Related FDI Inflows, Non-Oil Related FDI Inflows, Economic Performance

Private Sector Microcredit Programmes, Financial Inclusion and Sectoral Entrepreneurship: Evidence and Insights From Nigeria

Given the growing interest in microcredit operations, especially in the developing economies and the need to investigate the varied interrelationships between sectoral microcredit operations and economic growth of nations, this study examines the nature and direction of causal relationships that prevail between classified sectoral microcredit allocations and sectorally classified entrepreneurship contributions to Nigeria’s economic growth. Secondary data were sourced from Central Bank of Nigeria covering the period 1992 to 2011. Augmented Dickey-Fuller and Unit Root and the Standard Granger Causality techniques were employed in processing the data. The results of the study show that the time series variables are stationary. Out of the five classified sectors of economic activity – agriculture/forestry, other mining/quarrying, manufacturing/food processing, real estate/construction and transport/commerce, significant unidirectional causality only prevails in the other mining/quarrying sector with   causality running from contributions of other mining/quarrying in Nigeria’s GDP to microcredit allocations to that sector. The rest other sectors failed the causality test at 0.05 level, although transport/commerce sector records a near significance level of 0.055. The study concludes that: (i) In the sectors where microcredit operations have become significant and/or near significant, they only function to service rather than promote entrepreneurial activities, (ii) For majority of the sectors, entrepreneurship ventures are largely independent of microcredit institution’s operations. Consequently, the study recommends diversified product development and intensified marketing of microfinance service products on the part of the participating institutions. Further recommended is that the government should, through all legal and institutional means, strengthen the enforcement of credit contracts in general and microcredit operations in particular. This measure is justified in order to minimize the incidence of delinquent credit exposures, guarantee continued microcredit operations and long run survival of microcredit operating institutions in Nigeria. Key Words: Microcredits Allocation, Financial Inclusion, Sectoral Entrepreneurship

A Predictive Model For Nigeria’s External Debt: New Evidence And Insights

Motivated by the urge to search for improved prediction of the prevailing empirical interrelationships between Nigeria’s external debt and the acclaimed primary causants from received literature (productivity index, inflation rate, foreign reserves, population and balance of payment on current account), this study builds on the earlier studies of Isu (1997) as well as Nnamdi and Omojefe (2009). Secondary data was obtained from Central Bank of Nigeria's Statistical Bulletin over the period 1986 to 2016. Stationarity, Multiple Regression, Johansen's Cointegration, Error Correction and Granger Causality tests were employed in processing the obtained data on incremental/change basis. The results obtained represent obvious improvements on earlier studies of Isu (1997) as well as Nnamdi and Omojefe (2009). They provide evidence that in the short run, inflation rate and population are significant predictive variables for Nigeria's external debt. The long run analysis reveals that inflation rate, foreign reserves and balance of payment on current account are reliable predictors of Nigeria's external debt. Further, inflation rate and Nigeria's balance of payment on current account are found to be significantly promoted by Nigeria's external debt. The study concludes that combined, inflation rate, balance of payment on current account, foreign reserves, and population constitute reliable predictors of Nigeria's external debt depending on whether short or long run perspective is taken. On the whole, it is recommended that Nigeria’s Central Bank should address anti-inflationary measures, while the government should step up campaign efforts towards population control. Intensified diversification of the economy through increased private sector participation in non-oil related businesses is strongly recommended in order to boost Nigeria's export earnings, external reserves and balance of payment positions. Keywords: External Debt, Economic Performance, Development financing

CAUSALITY BETWEEN INTERNATIONAL TRADE AND EXCHANGE RATE IN SUB-SAHARAN AFRICA: EVIDENCE AND INSIGHTS

Motivated by the need to examine the exact nature of causality between international trade correlates and exchange rates, this study explored the directional causality between the two concepts. Panel Granger Causality- Dumitrescu-Hurlin tests and stationarity tests using Augmented Dickey-Fuller (ADF) were applied on data sourced from Sub-Saharan African countries for the period 1990-2018. Results showed bi-directional causality between real exchange rate, export and trade openness, while unidirectional causality was observed between real exchange rate and import. The prevailing contemporaneous causal relationship between real exchange rate, export and trade openness led the study to conclude that lagged values of each of the variables support the growth or behavior of the other. However, there was unidirectional causality which flow from real exchange rate to import. The conclusion here is that while real exchange rate promotes the volume of import, import on the other hand, does not support real exchange rate. JEL: B17; F31; O24 Article visualizations