New estimates of the effect of financial liberalisation on economic growth in Nigeria

The theory of financial liberalisation advocates the freeing up of financial markets so as to ensure a more efficient allocation of investment and a consequent improvement in economic growth. Nigeria’s experience with financial liberalisation started in 1987 but this resulted in a banking crisis 5 years later. Using an index which tracks the specific policies associated with financial liberalisation, this paper conducts an empirical evaluation of the impact of financial liberalisation on Nigeria’s economic growth. The results show that liberalisation has exerted a significant positive effect on growth in the long run, thus lending credence to the views that even though financial liberalisation might result in financial fragility in the short run, it is growth-enhancing in the long run.