Financial Development, Trade Openness, and Economic Growth in Nigeria: A Time-Series Analysis

The interaction between financial development, trade openness, and economic growth in Nigeria has important policy implications given the country's concurrent financial sector deepening agenda and AfCFTA trade integration commitments. This study empirically examines the dynamic relationships among financial development, trade openness, and economic growth in Nigeria for the period 1985 to 2022. Financial development was measured by the ratio of broad money to GDP, domestic credit to private sector as a percentage of GDP, and stock market capitalisation ratio. Trade openness was measured by the ratio of exports plus imports to GDP. Economic growth was measured by real GDP per capita growth. Johansen cointegration analysis, vector error correction modelling, and variance decomposition were employed. Results confirmed cointegrating relationships among all three variables. In the long run, financial development positively and significantly predicted economic growth (coefficient = 0.37, p < 0.01), while trade openness also had a positive significant effect (coefficient = 0.28, p < 0.05). The interaction term between financial development and trade openness had an additional positive growth effect, suggesting complementarity. Variance decomposition indicated that financial development shocks explained 18% of growth variation over a 10-year horizon. The study concludes that financial sector deepening and trade liberalisation are complementary growth drivers in Nigeria, and recommends coordinated policies that deepen financial markets alongside expanding non-oil trade capacity to maximise growth dividends. Keywords: financial development, trade openness, economic growth, cointegration, Nigeria