Effect of Financial Intermediation and Regulations on Financial Deepening and Growth: Evidence from Nigeria

Volume 11 Issue 4 March - May 2017

Research Paper

Effect of Financial Intermediation and Regulations on Financial Deepening and Growth: Evidence from Nigeria

Sebastian O. Uremadu*, A.C. Nwokocha**, Charity E. Duru-Uremadu ***

*Professor, Banking and Finance, College of Management Sciences, Michael Okpara University of Agriculture, Umuahia, Nigeria.

** Fellow, Nigeria Institute of Management, Lagos, Nigeria.

*** Assistant Lecturer, Educational Management, College of Education (COED), Michael Okpara University of Agriculture, Umuahia, Nigeria.

Uremadu, S.O., Nwokocha, A.C., and Duru-Uremadu, C.E. (2017). Effect of Financial Intermediation and Regulations on Financial Deepening and Growth: Evidence from Nigeria. i-manager’s Journal on Management, 11(4), 30-52. https://doi.org/10.26634/jmgt.11.4.13450

Abstract

In this paper, the authors have conceptualized that effective financial system regulations and efficient financial intermediation will increase financial deepening thereby leading to real GDP growth. This paper examines the effect of financial intermediation and government regulations on financial deepening and growth in Nigeria using time series data and OLS (Ordinary Least Squares) regression methodology. In particular, macroeconomic data covering 24 years were used to conduct these investigations and analysis. Their findings showed that government bank regulations proxied by total balances with the central bank lead financial deepening in Nigeria. It is then followed by another surrogate of a financial intermediation variable (i.e. total demand deposit liabilities) as 2nd ; cash reserve ratio representing another surrogate of a regulatory variable ranked 3rd , while total bank credit to domestic economy that represents another surrogate of financial intermediation ranked 4th in their descending order of magnitude. The negative influence of cash reserve ratio and total bank credit on financial deepening and growth were also found. It is therefore recommended that monetary authorities should step up their bank regulation efforts so as to persuade Nigerian banks to efficiently perform their financial intermediation roles in order to positively engender adequate financial deepening in the financial system that will lead to desired real GDP growth.