Full Lenght Article
Financial Sector Development, Foreign Direct Investment and Economic Growth in Nigeria

Under a Creative Commons license
Open Access


This paper explored the link between financial development, foreign direct investment, and economic growth in Nigeria. Annual time series data spanning 1981 through 2020 were obtained from the Central Bank of Nigeria 2021 statistical bulletin, and utilized in this research. The error correction methodology was adopted in the analysis while the ordinary least squares technique was employed in the estimation. The findings showed that financial development, foreign direct investment, as well as their interaction had no impact on economic growth of Nigeria in the short-run. In the long-run, however, the findings indicated that both financial development and foreign direct investment significantly promoted Nigeria’s economic growth. In addition, the effect of the interaction between financial development and foreign direct investment significantly hindered economic growth of Nigeria in the long-run. The study concluded that financial development and foreign direct investments are relevant determinants of economic growth of Nigeria. Policy focus on financial deepening to expand the absorptive capacities of the domestic economy was some recommendations made.


Financial Development
Foreign Direct Investment
Economic Growth


Conflict of Interest Statement

The author (s) declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.


1. Adekunle, A, Salami, G., & Adedipe, O. (2013), Impact of Financial Sector Development on the Nigerian Economic Growth. American Journal of Business and management 2(4), 347-356.
2. Agu, C., and Chukwu, J. (2018). Toda and Yamamoto Causality Test between Bank Based Financial Deepening and Economic Growth in Nigeria. European Journal of Social Sciences 7(2). 67-88
3. Akinwale, S. O. (2018). Bank Leading Rate and Economic Growth. Evidence from Nigeria International Journal of Academic Research in Economics and Management Science , 7, 111-122.
4. Al-Nalf, K.L. (2012) Casualty Relationship between Financial Development and Economic Growth in Jordan: Supply – leading and Demand-pulling Hypothesis Test. Middle Eastern Finance and Economics. 16 100 – 109.
5. Awad, N. (2015). Financial development and economic growth in the Middle East. Journal of Applied financial Economics 15, 1041-1051.
6. Bhattacharya, P. (2013). Financial development and Economic growth in India. Journal of Applied Financial Economics, 13, 925-929.
7. Choong, V. (2012). Financial development and Economic Growth in Malaysia: The perspective of Stock Market. Journal of Investment Management and Financial Innovations, 4,105-115.
8. Engle F., R., & Granger, W., C (1987), Co-integration and Error Correction: Representation, Estimation and Testing, Journal of Econometrical, 55, 251-276.
9. Eriemo, O. (2014). Financial Sector Development and Nigeria’s Performance in the Global System. Journal Development Countries studies, 4(7) 61-74
10. Fry M.J. (1988, 89): Financial Development Theories and Recent Experience; Oxford Review of Economic Policy 5, 13-28.
11. Gregorio, J. (2015). The Role of Foreign Direct Investment and Natural Resources in Economic Development, Working Paper No 256. Central Bank of Chile, Santiago..
12. Huang, Y. (2015). What determines financial development? The Journal of Risk Finance 12(2), 98-111.
13. Kar, S. (2020). Financial development and economic growth nexus in the MENA countries: Boot strap panel granger causality analysis. Journal of Economic Modeling 28(2) 685-693.
14. Khaled, T. (2016). Financial development, trade and growth triangle. International Journal of Social Economics, 34(9), 586-598.
15. Liu, H. (2012). Trade openness, capital flows and financial development in Developing economies. International Economic Journal, 23(3), 409-426.
16. Mihalca, G. (2017). The relation between financial development and economic growth in Romania. 2nd Central European Conference in Regional Science- CERS, 719-725.
17. Odeniran, S., & Udeaja, E. (2010). Financial Sector Development and Economic Growth: Empirical Evidence from Nigeria. Journal of Economic and Financial Review, 4(8)35-52
18. Omran, E. (2013). An Empirical Assessment of Financial Sector Development and Economic Growth in Nigeria. International Review of Management and Business Research, 3(1), 25-41
19. Onodje, A.M. (2009). An Insight into the Behaviour of Nigeria’s Private Consumer Spending. Economic and Policy Review, 15, 8-15.
20. Rahman, H. (2014). Financial development-Economic growth nexus: A case study of Bangladesh. The Bangladesh Development studies, (3&4),113-128.
21. Rathinam, F. (2017). Law institutions and finance: Time series Evidence from India.German working papers in Law and economics, 7(4), 1-23.
22. Sinha, D. (2020). Financial development and economic growth: The case of eight Asian countries. Social Sciences Research Networks.Com, 1- 32.
23. Suleiman, A. (2010). Financial Development and Economic Growth Nexus: Time Series Evidence from Middle Eastern and North African Countries. European Economic Review, 26, 653-661.
24. Turkey, W. (2012). An empirical study of financial development and economic growth. American Journal of Applied Sciences, 6(7), 1410-1417.
25. Xu, Z. (2012). Financial development, investment, and economic growth. Journal of Economic Enquiry, 38(2), 331-344.

Bibliographic Information

Verify authenticity via CrossMark
  • Submitted
    14 September 2022
  • Revised
    14 September 2022
  • Published
    14 September 2022