Effect of Financial Deepening on Industrial Sector Output in Nigeria

Abstract

The paper investigated financial deepening and industrial sector output in Nigeria adopting time series for 1987 to 2019. The researcher disaggregated the variables of financial deepening into money supply, market capitalization and the private sector as proportions of GDP. The variables were regressed on industrial sector proportional contribution to GDP as industrial sector output and the dependent variable. The model was analyzed using the ARDL technique. The empirical investigation of the study revealed that long run relationship was not statistically significant. The results revealed that money supply has no short run effect on the Nigerian industrial sector. However, credit to the private sector has a short-run effect on the Nigerian industrial sector. It further explained that, market capitalization does not have a significant effect on the short-run on industrial sector output in Nigeria. This is contrary to the theoretical expectation of Mckinnon and Shaw (1973) that interest rate as a booster does not hold. Amongst the recommendations is that government should ensure effective management of money supply to Nigerian economy; as well as to encourage increased extension of credit to the private sector to boost industrial sector output in Nigeria.