Journal of Applied Finance & Banking

Financial Sector Development and Industrial Production in Nigeria (1970-2009): An ARDL Cointegration Approach

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  • Abstract

    Literature abound justifying that industrialization is a pathway to economic development and growth. Whereas linkage between financial development and economic growth has long been a subject of intense scrutiny, not much has been done to examine the link between financial development and industrial growth. Using an aggregate production framework and autoregressive distributed lag (ARDL) cointegration technique for Nigerian time series data covering the period 1970 to 2009, the paper finds a cointegration relationship between financial sector development and industrial production. Both the long run and short run dynamic coefficients of financial sector development variables have negative and statistically significant impact on industrial production. Based on these research outcomes the following policy implications can be drawn: the most important task for government of Nigeria is to introduce further financial sector reforms to improve the efficiency of the domestic financial sector which is a pre-requisite for the achievement of industrial development. The inefficiency of the financial sector is responsible for the adverse impact on industrial production. Appropriate measures should be taken to eliminate the constraints and challenges facing small and medium scale enterprise (SME) funding schemes, as these enterprises form the bedrock of the Nigerian industrial sector. Furthermore, industrialization requires a lot of innovations and entrepreneurship. To achieve these, appropriate policy should be undertaken. Given the strong positive impact of labour stock on industrial production, policies should be geared towards diverting resources to develop more human capital.