Abstract

The study examined the relationship between financial deepening and investment in Nigeria. Secondary data spanning from 1970 to 2013 was used for the empirical analysis. It adopted the Gregor-Hansen Endogenous structural break methodology and the supply-leading hypothesis in building the model. The study also employed the Unit Root Test, Co Integration Test and Granger Causality Test. It discovered a unidirectional causality, running from financial deepening to investment. It also found that the financial deepening has a statistically significant impact on domestic investment. Based on these empirical findings, the study recommended increased integration of the credit and thrift societies, cooperatives, rural saving organization etc into the mainstream formal financial sector in order to shore up the mobilization of savings for investment. It also recommended subsidizing the operational cost of financial intermediation so as to narrow the gap in interest rate spread. These steps when judiciously executed will ultimately promote financial deepening by easing the rigidities involved in mobilizing and accessing of credit for investment purpose.

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