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Impact Of Financial Development On Economic Growth
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Pdf] Comparative Analysis: The Impact Of Financial Sector Development On Economic Growth In The Non Oil Sector In Saudi Arabia
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Received: 3 August 2016 / Revised: 1 October 2016 / Accepted: 25 October 2016 / Published: 7 November 2016
This study empirically examines the relationship between financial development and economic growth in Nigeria over the period 1981-2011 using the auto-regressive distributed lag (ARDL) method in correlation analysis. . The results show that the relationship between financial development and economic growth in Nigeria is not significantly different from what is commonly observed in the oil dependent economy. The relationship between financial development and economic growth in Nigeria has been found to be insignificant in the long run and very negative in the short run. The results show the importance of the oil sector in economic activities in Nigeria.
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The empirical evidence suggests that financial development stimulates economic growth by creating economic conditions that improve the use of resources (see Levine, 2004 ). . Building on this foundation, many empirical studies have examined the relationship between the development of the financial sector and economic growth (see Chang and Caudill, 2005 ; Seetanah, 2008 [ 3]; Anwar and Nguyen, 2011 ; Uddin et al., 2013 ; Nwani and Bassey Orie, 2016  among others). The results of many of these studies show that the development of financial networks is an important driver of economic growth. Three major areas of international finance have been broadly discussed in these studies: the role of financial intermediaries in mobilizing savings, the role of the investors in improving the economy of the private sector and the size of the investment system. According to Levine (1997 ), Levine (2004 ) and Beck et al. (2011 ) the growth potential of any international system is highly dependent on the efficiency of the system that enables capital to be mobilized and distributed. keep in the economy. By attracting investment from various sectors of the economy and financing investment projects in the private sector, financial advisors are generating high levels of economic growth, supporting companies that depend on foreign funds and reduce the financing of small and medium enterprises (Beck et al., 2005 ; Beck and Demirguc-Kunt, 2006 ; Beck et al., 2011 ).
However, the results of recent cross-sectional studies on financial sector development and economic growth in exporting countries suggest a weak or negative relationship ( see Cevik and Rahmati, 2013 ; Quixina and Almeida, 2014 ; Samargandi et al ., 2014 ; Adeniyi et al ., 2015 ; Nwani and Bassey Orie, 2016  with etc.). The argument is that many oil exporting countries are too dependent on oil revenues and cannot develop competitive financial sectors that can stimulate the economy of the private sector. Using an example of oil exports and non-oil exports, Nili and Rastad (2007 ) show that the development of the financial sector has little effect on the export of the oil because of the inadequacy of financial institutions, the prominent responsibility of the public. sector in the allocation of resources and the weakness of the private sector in the economy of oil exports. Beck (2011 ) concluded that oil-dependent countries may be affected by natural resource degradation in the development of financial sector. Analyzing the level of dependence on natural resources, the study shows that countries that are highly dependent on oil exports tend to have special fiscal policies and offer less of debt to the private sector, despite the fact that banks in these countries are more efficient and have more capital. . Barajas et al. (2013 ) used a database that includes more than 130 countries from 1975 to 2005 to study the expansion of finance in terms of income, within regions and between oil- selling and not selling oil. In the specific case of oil exporting countries, the study found that the growth potential of the financial development is weak. The results indicate that the development of banks in economic growth in oil exporting countries is four times reduce the growing dependence on oil.
This study seeks to contribute to the current research by examining the case of Nigeria using the auto-regressive distributed lag (ARDL) method in correlation analysis. Nigeria’s financial sector has witnessed many policy changes in the last two decades, aimed at stimulating economic growth through increased savings, credit provision in the private sector and the reduction of information and transaction costs makes this study necessary. This study contributes to existing research in two areas. First, by using the three financial statements constructed using principal component analysis (PCA) to examine the sensitivity of the financial-led-growth analysis to other combinations of each indicator of financial development in Nigeria . Second, by including the price of crude oil in the control variables of this study to control for the use of oil in economic activities in the Nigerian economy. The results of this study will be of interest to researchers and policy makers who seek to understand the role of financial sector development in Nigeria and other oil exporting developing countries.
The structure of this article is as follows: Part 2 provides some background information on the development of finance in Nigeria. Section 3 describes the data and the specific methods used. Section 4 presents and discusses the empirical results. Finally, Section 5 concludes and presents some policy implications.
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Table 1 provides an overview of the performance of the Nigerian economy compared to Algeria and a group of non-oil dependent economies (see Appendix A) using average income per capita and four development indicators in the period 1981-2011.
Table 1 shows the results of a large group of published data on countries, tables and timelines: countries with the highest levels of financial institutions achieved the highest annual GDP per capita in the period 1981-2011. With the high development of financial networks, countries that are not dependent on oil had the highest GDP per capita during the period. Between the two countries of OPEC (Nigeria and Algeria), Algeria achieved the highest level of GDP per person over the period and the highest level of financial development over Nigeria. The figures in Table 1 show the inability of the Nigerian financial sector to extend credit to the private sector. The average domestic debt by domestic banks and other financial advisors to the Nigerian private sector stood at about 14.55% during the period. In comparison, the figure is significantly lower than the amount of debt issued by financial advisors to Algeria and non-oil dependent countries during the period . Nigeria’s average GDP per capita stood at US$659.30 during the period. This figure places Nigeria among the poorest countries in distribution and shows the conclusion of many studies on economies dependent on natural resources: economies dependent on natural resources tend to grow more slowly than economy dependent on natural resources (Sachs and Warner, 1995 . ], 2001 ; Auty, 2001 ).
This study uses annual data covering the period from 1981 to 2011. Economic growth is defined as real GDP in each person. There are four widely used measures for developing financial advisory networks: domestic bank credit to the private sector divided by GDP, Water Liabilities to GDP, Bank asset deposits to GDP and Bank deposits to GDP are employed to capture different parts of the labor supply sector. in Nigeria. Four control variables are included to capture other aspects of the Nigerian macroeconomic environment that can affect the growth of the Nigerian economy. The variables include: the price of international oil measured as the Brent spot price (in US dollars per barrel), the ratio of the volume of trade (exports and imports) from) to GDP which explains the degree of openness of the Nigerian economy to trade, Gross fixed capital formation (% of GDP) and final government expenditure (% of the GDP). Time series data on variables are obtained from the World Development Indicators database, World Bank (Online), Beck et al. (2000) Financial Development and Statistics (2013 update)  and BP Statistical Review of World Energy. Appendix B is provided
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