Financial Sector Development, Human Capital, and Productivity Growth in Nigeria

Financial sector development and human capital accumulation are widely recognised as complementary drivers of total factor productivity growth, yet their interaction in a resource-dependent and structurally heterogeneous economy like Nigeria has not been rigorously examined in the existing literature. This study investigates the joint and interactive effects of financial sector development and human capital on productivity growth in Nigeria between 2000 and 2022. Financial sector development is measured through a composite index of banking depth, stock market development, and financial access, constructed using principal component analysis from Central Bank of Nigeria and World Bank data. Human capital is proxied by adult literacy rates, secondary school enrolment, and public education expenditure sourced from the National Bureau of Statistics and UNESCO. Total factor productivity is estimated using the Solow residual approach applied to sectoral national accounts data. The empirical framework employs a non-linear autoregressive distributed lag model to capture asymmetric effects of financial development and human capital on productivity and to test for threshold behaviour in the productivity-finance-human capital nexus. The theoretical framework draws on endogenous growth theory, the finance-led growth hypothesis, and the complementarity literature on finance-education interactions. A key analytical contribution is the construction of an interaction term to test whether financial development has stronger productivity effects in high-human-capital regions, using state-level panel variation as supplementary evidence. Findings are expected to inform the Central Bank of Nigeria's financial inclusion strategy and the Federal Ministry of Education's investment in vocational and tertiary education as a productivity-growth lever. Keywords: financial development, human capital, productivity growth, Nigeria, endogenous growth