EMPIRICAL ANALYSIS OF CAPITAL ACCOUNT LIBERALIZATION AND THE PERFORMANCE OF THE FINANCIAL SECTOR IN NIGERIA

Abstract

Capital account liberalization, according to the classical theory (and other theories) would lead to financial development and economic growth through the flow of capital from developed economies to the developing economies. This study examined the impact of capital account liberalization and financial development in Nigeria. The study used the Ordinary least Square (OLS) and Maximum Likelihood (ML) techniques, while annual time series secondary data spanning between 1980 to 2019 was explored. The Johnson co-integration, ECM and GARCH models were carried out. The result showed a bidirectional relationship between economic growth and financial development indicators for banking system and a unidirectional casualty that flows from economic growth to equity market. The result of the study is in conformity with the endogenous growth model which supports development of a vibrant financial sector as a key to fund mobilization. The paper, among others, recommends that, the existing capital liberation should be sustained, however, monetary authorities should initiate appropriate instrument to capture financial transactions in the informal financial sector.