ABSTRACT

This paper empirically investigate the impact of financial liberalization on the Nigeria economic between the periods 1981 to 2015 using secondary time series data sourced from the CBN statistical bulletin. This empirical research capitalized on the Nigeria financial system not only because it is one of the most transition economies in Africa, but also considering the fact that the Nigeria financial sector has undergone so many phases of changes during the pre and post era. Study employ unit root test, Johansen co-integration test, error correction model and granger causality test to ascertain the direction of causality. Findings reveals that The effect of financial liberalization on the rate of economic growth in the medium term can be calculated indirectly from the effects of real deposit rates on saving rates and on investment efficiency. Estimate shows the existence of positive and significant relationship between incremental foreign direct investment, Aggregate savings and growth in the long run. On this premises, study thus conclude that to a reasonable extent, financial liberalization has contributed to growth of the Nigeria economy in the long run although the positive effect of its contribution as not been felt to a large extent due to macro-economic instability. Study recommends that Government should aim at creating conditions which make private investment attractive. The conditions can range from general- establishing a stable macroeconomic environment, provision of adequate property right- to more specifics ones, such as adequate access to credit, imported inputs by investors, stable power supply, good road network, telecommunication and provision of adequate security. Policies that promote private investment would generally have significant benefits for long- run growth, and thus standard of living.