Financial Sector Development, Energy Consumption and Economic Growth in Nigeria

This study examines the relationship between financial sector development, energy consumption, and economic growth in Nigeria. Despite extensive research on these interdependencies, gaps remain in analyzing financial development using a comprehensive financial development index while simultaneously disaggregating energy consumption into renewable and non-renewable sources. This study addresses this gap by employing the Autoregressive Distributed Lag (ARDL) technique to analyze annual data from 1990 to 2023. The findings reveal that financial development significantly contributes to economic growth in both the short and long run. Non-renewable energy consumption positively impacts economic growth, underscoring Nigeria’s continued reliance on fossil fuels. However, renewable energy consumption exhibits a negative impact on economic growth, suggesting inefficiencies or high transition costs associated with clean energy investments. Inflation negatively affects economic growth, reinforcing the need for macroeconomic stability. The study also finds that gross fixed capital formation and population growth do not significantly influence economic growth in the long run, although short-term effects vary. Based on these findings, the study recommends that financial sector policies be strengthened to enhance economic growth, given the strong positive relationship between financial development and GDP. While transitioning to renewable energy is essential for sustainability, a gradual shift with improved efficiency, technological advancements, and policy incentives is necessary to mitigate its negative economic impact. Additionally, strict monetary and fiscal measures should be implemented to control inflation and sustain long-term economic growth.