THE RELATIONSHIP BETWEEN FINANCIAL DEEPENING AND INDUSTRIAL GROWTH: EVIDENCE FROM NIGERIA'S MANUFACTURING SECTOR

Abstract

This study examines the impact of financial deepening on manufacturing sector output in Nigeria from 1986 to 2022. The problem investigated is the persistent decline in Nigeria's manufacturing output despite various financial sector reforms. The study employs the Autoregressive Distributed Lag (ARDL) model to analyse the relationship between financial deepening and industrial growth using annual timeseries data from the Central Bank of Nigeria (CBN). The findings indicate a significant positive relationship between broad money supply and manufacturing sector output, whereas stock market capitalisation has an insignificant impact, suggesting inefficiencies in the capital market. The study recommends government policies to enhance financial accessibility through increased money circulation, lower interest rates, and capital market reforms to facilitate industrial financing. It concludes that a well-developed financial system is crucial for sustaining industrial growth, but structural inefficiencies in the capital market must be addressed to maximise its benefits.