The causal Relationship among Financial Development, Trade Openness and Economic Growth in Nigeria

Omoke Philip Chimobi

Abstract


The purpose of this study was to examine the causal relationship among financial development, trade openness and Economic Growth in Nigeria for the period 1970-2005. The econometric methodology employed was the Cointegration and Granger Causality test. The stationarity properties of the data and the order of integration of the data were tested using both the Augmented Dickey-Fuller (ADF) test and the Phillip-Perron (PP) test. The variables tested stationary at first differences. The Johansen multivariate approach to cointegration was applied to test for the long-run relationship among the variables but there were no cointegrating relations between Growth, trade openness and the three measures of financial development (Direct Credit, Private Credit and Money supply). The Granger-causality empirical findings suggest that trade openness and financial development does have causal impact on economic growth; conversely growth have causal impact on trade and financial development, implying support for growth-led trade but no support for trade-led growth. Domestic credit, Private credit and broad money, as percentages of GDP showed no causal impact on economic growth rather economic growth was seen to necessitate these credits and the supply of money. Also, Money supply was the only instrument of financial development that was seen to cause Trade openness.


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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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