Liberalization and Economic Growth in Nigeria
PETER IFEANYI OGBEBOR, ADESOLA RUKAYAT AWONUGA,
IFEOLUWA OLADAPO-DIXON
Department of Finance,
Babcock University,
Ilishan-Remo, Ogun State,
NIGERIA
Abstract: - This study looked at how Nigeria's financial markets, economic growth, and liberalization interacted
between 1986 and 2020. To account for both the short-run and long-run effects, the study used an econometric
model of autoregressive distributed lag modelling. To check the time series qualities, several diagnostic tests were
carried out, including descriptive statistics, a correlation matrix, and a unit root test. Inferences were drawn at the
5% significant level. The study's findings confirmed that while trade openness had a statistically significant
negative impact on economic growth [ =-1.4391; P -value = 0.0000], foreign ownership of shares had a statistically
favorable impact [ = 0.3027; P -value = 0.0000]. Additionally, it was shown that during the studied years, inflation
was negative but minor in relation to economic growth [ = -0.0032; P-value = 0.5870]. Based on the study's
findings, it was advised that an enabling macroeconomic environment be present to make use of the advantages
that financial liberalization and the financial market have to offer. Financial liberalization requires a favorable
macroeconomic climate, according to studies. Macroeconomic instability makes information asymmetry worse and
makes the financial sector more vulnerable. If the macroeconomic indicators are stable, foreign investors will be
more eager to make investments in Nigeria.
Key-Words: - Auto Regressive Distributed Lag, Economic Growth, Financial Markets, Gross Domestic products,
Liberalization.
Received: January 2, 2023. Revised: May 21, 2023. Accepted: June 2, 2023. Published: June 13, 2023.
1 Introduction
Achieving a high degree of sustainable economic
growth has been many developing and emerging
nations' primary goal. Studies have developed
numerous models and ideas to explain the
phenomenon of economic growth in response to the
demand to accelerate it. Economic growth, which is
defined as a percentage increase in the volume of
goods and services generated in the economy, occurs
when a country's GDP increases. This shows that,
regardless of whether the increase is happening more
quickly or more slowly, economic growth is defined
as a rise in national income that is reflected in the
economy's capacity to generate goods and services.
[1], defines economic growth as an increase in a
nation's rate of goods and services generated over a
given time period. The increase in the real gross
domestic product (GDP) or other measures of
aggregate income, which are generally stated as the
real GDP's annual rate of change, is what he went on
to define as economic growth. Therefore, what drives
economic growth is greater productivity, which
includes creating more goods and services with the
same inputs of labor, capital, energy, and materials. A
relatively modest growth rate, poor industrial output,
underdeveloped financial markets, and periodic
balance-of-payment crises, on the other hand, have
been recent characteristics of economic growth in
developing economies, [2].
The stock market at the global level consolidates
financial system expansion, enhancing the influence
of the latter on economic growth. [3], asserts that
establishing a financial market is crucial to achieving
economic growth, particularly in developing nations.
This suggests that financial market activities stimulate
economic growth, primarily by facilitating easier
access to credit, which boosts private sector
investment. As a result, the effective transfer,
allocation, and repatriation of financial resources is
the main function of the financial market. But only a
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properly operating and effectively regulated financial
market can fulfill these duties.
[4], concur that mature financial markets can promote
economic growth by improving the efficiency of
resource allocation. A climate that is beneficial to
investors can be fostered, especially in a robust
financial market. Because of this, the financial market
helps the economy thrive by increasing investable
money, reducing portfolio risk, fostering
entrepreneurship and innovation, and attracting
foreign direct investment. In the financial sector, the
phrase "financial market" is usually used to refer
solely to marketplaces that are used to raise cash. The
capital market, which comprises the stock and bond
markets, is an example of a long-term market, while
the money market is an example of a short-term
market. According to [5], one of the major obstacles
to economic growth in the majority of developing and
emerging economies is the lack of financing for
innovative ventures, which is why growth has
remained stagnant in these economies for the most
part.
According to [6], the 1986 implementation of the
Structural Adjustment Programme (SAP) led to the
opening of the formerly closed Nigerian economy
through the sale of government ownership of
enterprises and banking reforms. As a result, Nigeria's
financial systems, particularly the stock market, were
finally liberalized, allowing foreigners to participate in
the trading of stocks and other securitized instruments.
The reform encouraged a market-based credit
allocation system, boosted competition, and improved
the efficiency of the regulatory and supervisory
environment in addition to liberalizing interest rates.
Therefore, the impetus behind the adoption of the
Structural Adjustment Programme (SAP) was the
necessity to aggressively push Nigeria's banking
industry and economy toward global competitiveness,
[7]. Over the years, the Nigerian economy has grown
slowly, with average growth rates of 1.90% in 2018,
2.26% in 2019, -1.94% in 2020, and 3.40% in 2021.
The Gross Domestic Product (GDP) has grown slowly
during the past few years. The economy has been
characterized by fluctuating exchange rates, little
private investment, limitations on foreign exchange,
and high, ongoing inflation. The expansion and
liberalization of the financial markets are said to
significantly boost economic growth, [8].
The attraction of foreign investment and the end
of capital flight, however, show that the local
economy has not grown impressively despite the
required liberalization. How come this is the case? In
Nigeria, liberalization causes significant short-term
financial booms and busts, but these booms and busts
have not grown more severe over time. As a result,
Nigeria still has a problem with how liberalization, the
financial system, and economic growth interact.
It is still unclear how these policies have impacted
the economic development of Nigeria. Liberalization
and financial sector reform were intended to boost
savings through higher real deposit rates and private
investment in high-priority sectors. The purpose of the
study is to determine how different liberalization
indices influence Nigeria's economic growth. Various
specific measures, all of which attempt to in some
manner increase economic growth, are included in
financial market reforms.
2 Literature Review
2.1 Economic Growth
GDP, which is used to assess economic growth, is
defined by the World Bank as "the total output of
goods and services for ultimate use occurring within a
given country's domestic territory, regardless of the
allocation to domestic and international claims." The
gross domestic product at market prices is the sum of
all the gross value contributed by all domestic and
foreign producers, plus any taxes, less any subsidies
that are not a component of the product value. It is
calculated without taking into account the depreciation
of manufactured assets or the depletion and
degradation of natural resources.
The routes via which economic growth is transmitted
are capital accumulation and factor productivity.
According to [9], the transfer of factor productivity is
more significant than the transmission of capital
accumulation. The author claims that economies in
nations with comparable levels of capital investment
exhibit only marginally significant variations in
economic growth. The potential of the financial sector
to affect advances in factor productivity can partially
account for these variations. As a result, the financial
sector, which is how capital accumulation and factor
productivity are communicated to economic growth,
includes the bond and stock markets.
Economic growth is described by [2], as an
increase in the number of goods and services
generated in an economy, as shown by gains in a
country's gross domestic product. Economic growth is
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defined as a gain in national income as represented by
the capacity to produce goods and services, regardless
of whether the increase is the consequence of a faster
or slower rate of population growth. According to
Robert Solow, referenced in [10], economic growth is
a sustained increase in a country's level of output of
commodities and services.
According to [1], economic growth is the increase
in the GDP per capita or other measures of total
income, which is typically stated as an annual rate of
growth. Economic growth is primarily driven by
productivity gains, which entail creating more goods
and services using the same inputs of labor, capital,
energy, and materials.
Economic growth is defined as an increase in an
economy's capacity to generate goods and services
when contrasted over time, [11]. Economic growth is
a rise in a nation or economy's output or production.
This description covers all facets of an economy,
including wages, taxes, and wages-related factors like
output rate. The only way to determine economic
growth, given the statement above, would be to
calculate it as a numerical figure. As a result, a rise in
the Gross Domestic Product of a particular economy
expressed as a percentage can be used to measure
economic growth. A country's economic activity is
thought to be growing continuously, as evidenced by
its Gross Domestic Product (GDP).
2.2 Liberalization
Financial liberalization is removing or easing
governmental restrictions on the domestic financial
market. Financial liberalization, according to [12],
comprises deregulating the stock market, local
financial sector, and capital account of foreign sectors.
According to their definition, comprehensive financial
liberalization happens when at least two of the three
sectors have been fully liberalized while the third has
only been somewhat liberalized. According to [13],
financial liberalization is a combination of operational
changes and policy initiatives aimed at deregulation
and transforming the financial sector and its structure
to establish a liberalized market-oriented system
within the appropriate regulatory framework. The
term "financial liberalization" refers to steps taken to
lessen or eliminate regulatory monitoring of the
institutional frameworks, resources, and activities of
agents in different financial sector segments; these
steps might be linked to either internal or external
legislation, [14].
Financial liberalization also places a strong
emphasis on removing barriers to commerce and using
market forces (the combination of supply and demand
dynamics) to set prices for financial services. [15],
asserts that liberalization is the decrease of restraints,
either exogenous or endogenous, in which case they
are said to as being influenced or imposed from
without. The Author went on to clarify that financial
market liberalization is the process of applying the
broad concepts of liberalization to financial markets
and systems, which encompass both the capital and
money markets. According to [8], [15],
"liberalization" refers to the deregulation of the
internal financial system, which will promote
economic growth and stability by letting the market
decide on interest rates and capital regulations (credit).
A further elegant explanation of the liberalization
thesis may be found in major publications, [17].
According to the author, financial liberalization can
promote economic growth by increasing investment
and productivity. Financial liberalization may be good
if it decreases the cost of capital and results in more
savings, [15]. The hypothesis predicts that financial
liberalization will raise real interest rates and promote
saving. In return, it would be expected that higher
savings rates would finance higher investment rates,
which would lead to stronger economic growth.
2.3 Measures of Liberalization
2.3.1 Foreign Ownership of Shares
Foreign ownership is defined as when a corporation
has its headquarters outside the nation or when non-
citizens run and own a company there. The most
typical ways that foreign ownership of shares of stock
happens are through foreign direct investment or
acquisitions, which are long-term investments made in
a foreign country by multinational firms that operate
in numerous nations. Therefore, when a global
corporation acquires at least 50% of a business, the
multinational corporation changes into a holding
company, and the business that received the foreign
investment becomes a subsidiary, [17]. If a foreigner
buys domestic property, they may also get shares. The
specific criterion employed in this study to determine
foreign ownership of shares is the percentage change
in foreign ownership of shares of locally incorporated
companies listed on the Nigerian Exchange (NGX)
(NSE).
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2.3.2 Trade Openness
Trade openness measures a nation's involvement in
the world trading system. Usually, it is determined by
dividing the sum of exports and imports by GDP. To
reduce the appeal of international trade, a government
may implement a severe tariff policy, which may
discourage other nations from both importing into and
exporting to that nation. The World Bank defines
trade openness as the proportion of an economy's total
imports and exports to its GDP. Trade restrictions,
which are an indication of a lack of trade openness,
can hurt the economy by stifling both economic
development and growth, according to widely
accepted economic theory. Greater technology
transfer, increased talent transfer, factor productivity,
economic growth, and development are only a few of
the alleged economic advantages of open trade.
Having a low cost of doing business, which is an
abstraction of the costs related to transportation,
tariffs, subsidies, taxes, and non-tariff obstacles, is
what, [18], defines as having an open global trading
system.
[19], asserts that trade openness is the difference
between earning foreign currency through exports and
saving foreign currency through import substitution.
The flow of foreign direct investment, capital, goods,
and services to host countries or areas is facilitated by
openness to international commerce. The advantages
of openness include increased trade in commodities
and services as well as improved domestic technology,
[20]. However, [21], showed that trade openness had a
beneficial effect on economic growth.
Trade openness enables countries to take hold of
new markets, increase their market share, and
strengthen their competitiveness, [22]. One important
consequence of trade openness is the transfer of
technology from the source country, which is often
developed, to the destination country, which is
typically a developing country, [23]. Trade openness
has been evaluated using a variety of indicators, [24].
First, trade shares (outcome openness measure), which
is computed as exports + imports divided by GDP and
is utilized by numerous research that demonstrate a
substantial and positive association between openness
and growth, are the most basic indicator of openness.
The second group includes trade barrier indicators
(also known as policy openness measures). These non-
tariff barriers (NTBs), which measure how trade-
restrictive a region is, include average tariff rates,
export taxes, levies on foreign trade, and NTB
measures, [25].
Depending on factors like technology, culture,
science, inward and outward orientation, and others, a
country may choose to be fully or partially open to the
capital or financial market, according to [26]. Trade
openness is a multidimensional concept. A nation can
also choose to be open in some sectors, like trade,
while closed off in others, like foreign direct
investment, to restrict foreign ownership of shares.
They conclude that there is no perfect degree or type
of openness that applies to all countries at all times. In
actuality, a country's commercial openness is neither
open nor closed.
2.3 Theoretical Framework
The liberalization idea serves as the foundation for
this investigation. The fundamental papers by [16],
[27] established the theory of financial liberalization.
According to these academics, financial deregulation
can boost productivity and investment, which in turn
can boost economic growth. Financial liberalization
may also be beneficial if it increases savings,
decreases the cost of capital, and promotes the
adoption of better governance practices and claims,
[28]. Theoretically, financial liberalization should
raise real interest rates and promote saving. The
expectation is that higher savings rates will finance
higher investment rates, which would subsequently
result in better economic growth.
According to the financial liberalization idea, allowing
the market to set interest rates and manage capital, or
credit, will enhance macroeconomic stability and
regional economic growth. The improvement of the
effectiveness, scope, and quality of financial
intermediary services is referred to as financial
development. Financial development refers to the
efficiency of financial markets and intermediaries in
this context, and it is determined by the financial
structure of the economy. Financial development is
facilitated, in accordance with [16], [27], when all
limitations and constraints that result in financial
repression are lifted. As a result, effective supervision
and a strong regulatory framework can be used to
regulate both domestic and foreign investors as well as
the transfer of resources produced by new savings to
effective investments.
[29], explained that when a financial system is
operating efficiently, changes to it result in better
distribution of financial resources. The ease of
borrowing money at cheaper rates helps businesses
grow in this environment. The most prosperous
projects may also receive funding from financial
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intermediaries. This is also expected to improve
financial intermediary services' effectiveness,
quantity, and quality. Additionally, according to [30],
liberalization includes official government policies
that stress-reducing restrictions on international
financial activities, deregulating interest rates and
credit controls, and removing barriers to entry for
foreign financial firms. Because of this, liberalization
theory has both internal and global dimensions. The
establishment or improvement of the market's pricing
mechanism and increased market competition are the
main goals of market liberalization, which promotes
economic growth.
Other critics of this thesis, including, [31], [32],
[33], said that financial liberalization frequently
yielded unsatisfactory outcomes and sporadically led
to economic and financial catastrophes. First, [31],
pointed out that the issue of asymmetric knowledge
that can impede financial intermediation from being
more efficient in a liberalized market is not addressed
by financial liberalization in and of itself. Similarly to
this, financial liberalization may exacerbate problems
with the information. As financial markets become
more open and competitive, relationship lending may
become less common, offering borrowers additional
options and motivating them to look for the least
expensive financing solution for their investment. But
as relationship lending declines, knowledge capital is
lost as well, increasing information asymmetries.
According to [32], more competition in the financial
market may also result in decreased profit margins and
increased financial fragility for financial
intermediaries like banks. [33], noted that
liberalization reduces the franchise value of banks,
making them more vulnerable to financial instability
and increasing risk-taking to increase profits in the
face of shrinking interest rate margins. When loan
margins are low, banks may be more likely to employ
a gambling strategy, putting less attention on risk and
more emphasis on profit. They might also be more
willing to cut back on screening and monitoring
expenses. Therefore, if increasing competition fosters
excessive risk-taking, financial deregulation may
result in crises.
This theory is important to the study because it
explains how letting the domestic financial market set
interest rates and manage capital will help countries'
economies flourish and remain macroeconomically
stable. The hypothesis is pertinent to the current study
since it holds that financial market liberalization
drives economic growth.
2.4 Empirical Review
Nigeria's market liberalization and economic
expansion were looked at by [30]. The results show
that, over the long term, the current level of economic
growth responds to disequilibrium from past levels of
real GDP, stock market development, foreign direct
investment, trade openness, inflation, and banking
sector development. A wide range of econometric
techniques, such as unit root test, co-integration,
vector error correction model, and granger causality,
were used to support the findings. The study also
revealed that historical real GDP, foreign direct
investment, and trade openness are all favorable for
short-term economic growth. In both the short and
long terms, the study found that there are bi-
directional causal links between the dependent and
explanatory factors. The study's conclusions suggest
that for Nigerian authorities to favorably influence
economic growth, they should concentrate more on
elements that can boost foreign direct investment,
trade openness, inflation, and banking sector
development.
This article analyses Nigeria's financial
liberalization and economic growth from 1981 to 2012
using the McKinnon-Shaw paradigm. Co-integration
analysis and the ordinary least squares method were
both used in the study, [34]. The results show that
financial deregulation and private investment have a
strongly favorable effect on Nigeria's economic
growth. However, it was discovered that real lending
rates (LDR) had a bad correlation with Nigeria's
economic growth over the study period. According to
the study's findings, Nigeria's monetary authorities
and decision-makers must support the liberalization
process by creating supplementary policies and
financial sector reform measures that would boost the
process's favorable economic consequences.
Co-integration and error correction were used by
[35], to analyze quarterly data from 1974 Q1 to 2013
Q2 and evaluate how economic liberalization affected
Bangladesh's growth. The results show that economic
liberalization has had a detrimental effect on
Bangladesh's economic growth because the real
interest rate is negative and considerable. [36],
reviewed the literature on the connection between
finance and growth to assess the relationship between
financial liberalization and economic growth in
Turkey from 1975 to 2004. Based on the theory of co-
integration and the representation of co-integrated
variables with error correction, the empirical research
is conducted in a vector auto-regression framework.
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The study's empirical findings demonstrate a
bidirectional causal relationship between financial
development and economic growth (bi-directionally).
[37], discovered that an increase in interest rates
during the years following the banking sector's
deregulation caused a rise in savings, which had a
positive effect on Ghana's GDP growth. The ordinary
least square (OLS) regression analysis was used to
find this. It demonstrated how financial liberalization
increased capital utilization effectiveness and
accelerated capital accumulation, two factors crucial
for economic growth. Similar to this work, [6], used
time series data and OLS estimation techniques to
investigate the association between financial
liberalization and stock market development in
Nigeria. The study concludes that financial
deregulation has affected the expansion of the
Nigerian stock market. The conclusion reached was
that additional efforts should be made to maintain the
pace of financial liberalization in Nigeria, and further
encouragement of market opening should be
supported.
Additionally, [38], used annual data from 1971 to
2007 to investigate the connection between Pakistan's
financial liberalization index and economic growth.
The Phillips Perron unit root test was used to assess
the level of integration after the Auto-Regressive
Distributed Lag (ARDL) method was used to calculate
the long-run and short-run coefficients. The empirical
results showed a favorable correlation between the
financial liberalization index and short-term economic
development. On the other hand, the real interest rate
has a detrimental and statistically significant impact
on economic growth, but the financial liberalization
index has a statistically inconsequential long-term
impact. This suggests that a real interest rate increase
of one unit results in a decrease in GDP.
3 Methodology
3.1 Research Design
The research methodology was ex-post facto. Ex-post
facto research design allows the use of variables that
already exist when investigating whether a causal
relationship exists between at least two variables,
which is the reason for the adoption of this research
design. 35 years were spent collecting the material
(1986 to 2020).
3.2 Model Specification
The empirical study for this research was modified in
accordance with the theory of liberalization and in
response to the work of [38], whose study examined
the relationship between Pakistan's financial
liberalization index and economic development. While
economic development was a proxy for RGDP,
foreign ownership of shares and trade openness were
proxies for liberalization. The functional model that
underpins this research was described as follows:
(1)
However, inflation was used as a control variable for
the model and thus presented below:
(2)
Where:
RGDP refers to the economic growth indicators
whereas FOW and TOP represent the liberalization
indicators (Foreign ownership of shares and Trade
openness). However, INF represents inflation
The empirical model is specified as follows:
(3)
In addition, to obtain error correction estimates related
to the ARDL long-run equilibrium model, the study
specifies the model as:
(4)
Where:
The error correction model's greatest lag length for the
RGDP and other explanatory variables is were, where
t stands for the time period. The incorrect terms were
FOW, TOP, and INF, which stand for percentage
changes in foreign ownership of shares, trade
openness, and inflation. RGDP stands for real gross
domestic product. was the error correction term, and
the indices, and were. Final prediction error (FPE),
Akaike information criterion (AIC), and Hannan-
Quinn information criterion (HQ) values were used to
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find the ideal lag length. The study considers the
multicollinearity test, unit root test, heteroskedasticity
test, collinearity as well as normality in addition to the
estimation methods used.
4 Results and Findings
The autoregressive distributed lag model on
liberalization and economic growth in Nigeria is
presented in Table 1.
H01: Liberalization has no significant effect on
economic growth in Nigeria.
Table 1. Autoregressive Distributed Lag Model on Liberalization and Economic growth in Nigeria
Variables
Coefficient
Stand. Error
T-Statistics
P–Value
Short-Run Coefficient and Error Correction Model
D(LFOW)
-0.011204
0.046932
-0.238740
0.8133
D(TOP)
-0.485311
0.143413
-3.383999
0.0024
D(INF)
-0.003748
0.002014
-1.861247
0.0745
ECT (-1)
-0.337229
0.064964
-5.191037
0.0000
Long-Run Coefficient
LFOW
0.302737
0.033201
9.118351
0.0000
TOP
-1.439112
0.269929
-5.331444
0.0000
INF
-0.003228
0.005866
-0.550323
0.5870
C
18.391264
1.000375
18.384361
0.0000
R-Squared
0.5524
Adjusted R-Squared
0.4449
F-Statistics
5.1417***(0.0014)
Diagnostics Test
Breusch-Godfrey Serial
Correlation LM Test
3.3872 (0.0514)
Heteroskedasticity Test:
Breusch-Pagan-Godfrey
4.4113 (0.6212)
Jargue-Bera Normality
Test
1.3384 (0.5121)
Cusum Test
Stabled
Cusum Square Test
Stabled
Source: Author’s Computation (2022)
Short Run Effect
ECT (-1) [-0.3372 (P 0.0000)] The short-run model
showed that the yearly rate of economic growth
adjustment at a 5% level is roughly 33.72%. The
ECT co-efficient had a negative value and a
significant probability linked with it at a 5%
inference, which was consistent with the Error
Correction Model's theoretical exposition.
At the 5% level, foreign ownership of shares (FOW)
had no statistically significant short-term impact on
economic growth [ = -0.0112; P - value = 0.8133].
According to the statistically insignificant influence,
a 1% increase in FOW had a short-term negative
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impact on the economic growth of approximately
0.0112 percent.
The short-term effect of trade openness (TOP)
was also statistically significant at the 5% level [ = -
0.4853; P - value = 0.0024]. According to the
statistically significant effect, a 1% increase in TOP
had a negative short-term impact on the economy of
about 0.4853 percent.
Short-term inflation rate (INF) effects were not
statistically significant at the 5% level [ = -0.0037; P-
value = 0.0745]. It is clear why a 1% increase in INF
resulted in a temporary decline in the economic
growth of about 0.0037 percent because the
statistically insignificant impact was negative.
At the 5% level, the constant coefficient was
unfavorable and statistically significant [ = 18.3912;
P 0.0000]. This explains why, when all explanatory
variables are kept constant, economic growth
amounts to a positive value of 18.3912% percent.
Long Run Effect
Foreign Ownership of Shares (FOW) was statistically
significant at the 5% level and positive, according to
the results of the long-term impact [ = 0.3027; P -
value = 0.0000]. This suggests that during the studied
years, an increase of 1% in foreign ownership of
shares was correlated with an increase in economic
development estimated at 0.3027 percent.
Additionally detrimental and significant at the
5% level, the long-term impacts of trade openness
were [ =-1.4391; P -value = 0.0000]. This
demonstrates that, over the reported years, an
increase of 1% in trade openness was correlated with
an increase of approximately 1.439% in economic
growth.
Additionally, the findings of the long-run effect
showed that inflation was negative and statistically
insignificant at the 5% level [ = -0.0032; P-value =
0.5870]. This shows that during the years under
observation, a 1% rise in inflation led to a 0.0032%
decrease in economic growth.
Diagnostics Test
The serial correlation value of 3.3872 (0.0514) for
the autocorrelation test suggests that there was no
serial correlation in the model. The Breusch-Pagan-
Godfrey heteroscedasticity test was also successful in
satisfying the heteroscedasticity test. The outcome of
14.4113 (0.6212) showed that the model had no
heteroscedasticity. However, the normality test result
of 1.3384 showed that the remainder is normally
distributed (0.5121). The model is preferable,
according to this claim.
The cumulative sum (CUSUM) and cumulative sum
of squares (CUSUM of SQUARE) were both used to
calculate the model's stable form. The CUSUM and
CUSUM SQUARE statistics are plotted against the
critical limit of 5% significance. The stability forms
show that the stability lines are contained within the
critical limits at a 5% level of significance. This
implies that the parameters of the error correction
model are all stable. The stability test of cusum and
cusum of square is presented in Figure 1.
Decision
The null hypotheses were refuted by the significant
values of the computed F-statistics and R2 values [F -
Stat. = 5.1417; P - value = 0.0014; R2 = 0.4449]. The
null theories are disproved as a result. The study then
concluded that liberalization had a major impact on
Nigeria's economic growth.
Discussion of the Results
This research looked at the connection between the
financial market in Nigeria, economic growth, and
liberalization. The study's findings, which were
corroborated by empirical research on liberalization
and economic growth in Nigeria, indicated that trade
openness had a temporary negative impact on
economic growth there, but that this effect was not
statistically significant when compared to foreign
ownership of shares. However, the results of the
long-term effects showed that foreign ownership of
shares was both favorable and statistically significant
to influence economic growth, trade openness was
both unfavorable and statistically significant to
influence economic growth, and inflation was both
unfavorable and statistically insignificant to
influencing economic growth in Nigeria.
The study was carried out in tandem with the
empirical research of [34], which showed that
financial deregulation and private investment have a
significant positive effect on Nigeria's economic
growth. [39], which found a long-term association
between financial liberalization and economic
growth, providing additional support for the
empirical results of this research. Furthermore, a
study by [40], supported the experiment's results.
Finding, [40], revealed that there were short- and
long-run co-integrations for each dataset.
Furthermore, given that the study discovered a
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2023.20.114
Peter Ifeanyi Ogbebor,
Adesola Rukayat Awonuga,
Ifeoluwa Oladapo-Dixon
E-ISSN: 2224-2899
1285
Volume 20, 2023
transiently favorable relationship between the
financial liberalization index and economic growth,
[38], contest the results.
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
92 94 96 98 00 02 04 06 08 10 12 14 16 18
CUSUM of Squares 5% Significance
Fig. 1: The Stability Test of Cusum and Cusum of Square
5 Conclusion and Recommendation
Financial liberalization is the process of opening up
the economy to outside investment in the financial
sector. Liberalization makes it possible for buyers
and sellers of securities to transact on a global scale
without depending on physical boundaries, which
integrates the national economy with the world
economy. Nations will greatly benefit from
liberalization. In addition to other benefits, allowing
foreigners to own shares reduces the cost of equity
capital by increasing the volume of shares traded and
lowering equity capital costs. The result suggests that
liberalization tends to have a positive impact on
economic growth when foreign ownership of shares
is used as a proxy for liberalization while having a
negative impact when trade openness is used as a
proxy. This impact is positive when foreign
ownership of shares is used as a proxy for
liberalization while having a negative impact when
trade openness is used as a proxy.
The study's results and conclusion suggest that to
benefit from financial deregulation and the financial
market's advantages, a favorable macroeconomic
environment is necessary. According to studies,
financial liberalization needs a positive
macroeconomic environment. Information
asymmetry is exacerbated by macroeconomic
instability, which also increases the finance sector's
vulnerability. Foreign investors will be more willing
to invest in Nigeria if the macroeconomic indicators
are stable.
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Ifeoluwa Oladapo-Dixon
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors have no conflict of interest to declare.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
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DOI: 10.37394/23207.2023.20.114
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Ifeoluwa Oladapo-Dixon
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