A BOUND TEST ANALYSIS OF FINANCIAL INCLUSION AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA

Abstract

Nigeria with a current population of 223.8 million people is faced with only 21 commercial banks, 860 Microfinance banks, 5 discount houses, 64 finance companies, and 5 development finance banks to care for all these people. The introduction of a universal banking system in Nigeria which enables the commercial banks in the country to offer all-inclusive financial services other than commercial banking brought a remarkable reform in the financial sector. However, the challenge of these 223.8 million people accessing these financial services at an affordable rate is a problem of concern in Nigeria. This study examined the relationship between financial inclusion and economic growth in Nigeria using annual time series data of some selected financial inclusion indicators in the Nigerian financial sector. It adopted the Granger causality test and an autoregressive distributed lagged model otherwise known as the Bound test to examine,both the short and long-run impacts of financial inclusion on economic growth in Nigeria. The causality results revealed that there is a unidirectional causal relationship flowing from loan to small and medium-scale enterprise to economic growth in Nigeria while loan of rural bank branches has a bidirectional causal relationship with economic growth in Nigeria. The result of the co-integration analysis revealed that there is a long-run relationship between financial inclusion and economic growth in Nigeria. Also, for the short-run impacts, deposits of rural bank branches, the number of bank branches, and loans to the agricultural sector have a significant positive impact on economic growth in Nigeria. Therefore, to achieve rapid economic growth in Nigeria, government and monetary authorities should ensure the promotion of banking services and the establishment of bank branches deeper in the rural areas to increase financial inclusiveness in the economy.