The Effect of Financial Innovation on Economic Growth: Evidence From ARDL In Nigeria

Abstract

The main objective of the study was to examine the effect of financial innovation on economic growth in Nigeria. To achieve this, four hypotheses were formulated for testing and data were collected from the Central Bank of Nigeria annual statistical bulletin from 2010 to 2020. A multiple regression model was specified while the An Auto Regressive Distributed Lag approach to cointegration (ARDL) was used as the data estimation technique at 5% significance level. Descriptive analysis, Unit root and cointegration tests were conducted. Findings from the ARDL result shows that financial innovation component of private sector credit (PSC) can enhance economic growth. The finding further shows that increase in the supply of money from the deficit spending unit and channelled to the surplus spending unit, overtime can improve the gross domestic product. Meanwhile, the study also found that Automated teller machine (ATM) transactions and Point of sale (POS) transactions did not have significant effect on economic growth while the use of mobile payment system for transaction was found to have significant effect on economic growth in Nigeria.The study concluded that financial innovations is a veritable approach to enhancing economic growth in Nigeria The study recommends that Policies that can drive competition and efficiency in the banking industry, as well as a growth-enhanced innovation, should be introduced to ensure effective functioning of the financial system to provide more fund to the private sector to help boost the economy through investment. The financial institutions should explore more of the option of Mobile banking to further entrenched faster access to capital. Furthermore, the financial institutions should explore the financial innovations framework to help monitor the use of Automated Teller Machines (ATM), Point of sales (POS) and mobile payment system (MOP) for transactions.

Keywords: Financial innovations, Economic growth, Auto Regressive Distributed Lag Model, Nigeria.