An Empirical Investigation of the Link between Financial Depth and Savings Mobilisation in Nigeria
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Date
2019
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Abstract
An efficient and well-developed financial sector is important for mobilising domestic savings to deepen the financial sector, enhance economic growth as well as reduce poverty in any economy. To examine the extent to which deepening of the financial sector is important for savings mobilisation in Nigeria, this study used the Autoregressive Distributed Lag bounds testing technique for co-integration on a set of time series data for the period 1987 to 2017. In addition, the Toda and Yamamoto Granger non-causality test was used in determining the causality direction. The study found the existence of a long-run relationship between financial depth and savings mobilisation and a uni-directional causality from financial depth to savings mobilisation. These findings imply that financial sector deepening is important in order to increase domestic savings. Therefore, it was recommended that financial sector intermediaries (banks in particular) should increase the depth of the financial sector through efficient credit monitoring to the private sector, for increased productivity and investments which would in turn, encourage greater savings. In addition, the gap between savings and lending rate should be reduced to encourage more savings.
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Keywords
domestic savings, Auto-regressive distributed lag, Financial deepening, co-integration