Dynamic nexus between financial deepening and inclusive growth in Nigeria: ARDL approach

Purpose- Within the context of financing-growth nexus, there is contentious argument that financial deepening is the consequence, not a cause of economic growth which tends to increase the demand of financial instruments that leads to the advancements in financial infrastructure. Consequently, to resolve this issue, there is need to examine the impact of financial deepening on inclusive growth in Nigeria. Methodology- Using ARDL method of analysis on data collected from Central Bank of Nigeria and World Bank database from 1982 to 2024 the study determined the short and long run relationships between financial deepening and inclusive growth in Nigeria. Findings-The results of the study show that credits to private sector (PSC_GDP), bank lending rate (LR) and rural bank loan to rural deposit ratio (RL_RD) have positive and significant impact on inclusive growth. While financial deepening (FD) has negative but significant impact on inclusive growth. As for the loan deposit ratio (LDR), it has a negative and insignificant impact. Conclusion- The findings from this study provide new and valid evidence that addressed the controversy between the finance-growth nexus. Also, aligning the results with the theoretical expectations provide the basis for a sound financial system policy that emphasizes strong financial deepening in Nigeria, thereby, making the report a reliable basis for forecasting and policymaking. A limitation of this study is that the available data is restricted to 2023, which presents an opportunity for future research. Keywords: Cash-based economy, financial deepening, financial intermediation, financial system, inclusive growth