Abstract—This paper investigates the role of financial
development on economic growth in Nigeria. Since a causal link
may evolve over time, a bootstrap rolling window approach is
used to account for potential time variation in the relationship
with annual Nigerian data on money supply as a ratio of
nominal GDP and real GDP per capita from 1961-2012.
Starting first with a full sample bootstrap Granger causality,
the results indicate no causality between the two series. The
relevant VAR is unstable for the full sample which undermines
the confidence in the bootstrap full sample Granger causality
tests. Therefore a bootstrap rolling window estimation was used
to evaluate Granger causality between financial deepening and
economic growth over different time periods. These tests reveal
periods where financial deepening has predictive power for
economic growth: 1973-1974 and 1976 as well as periods where
economic growth has predictive power for financial deepening:
1980-1982, 1985-1986, 1995-1996, 1998, 2000, 2004 and
2008-2011. These results highlight the risk of misleading
conclusions based on the standard Granger causality tests
which neither accounts for structural breaks nor time variation
in the relationship between financial deepening and economic
growth.
Index Terms—Bootstrap, economic growth, financial
deepening, time varying causality.
Goodness C. Aye is with the University of Pretoria, 0002, Pretoria, South
Africa; She is also with University of Agriculture Makurdi, Nigeria (e-mail:
goodness.aye@gmail.com).
[PDF]
Cite: Goodness C. Aye, "Causality between Financial Deepening and Economic
Growth in Nigeria: Evidence from a Bootstrap Rolling
Window Approach," Journal of Economics, Business and Management vol. 3, no. 8, pp. 795-801, 2015.