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Financial reforms and industrialisation: evidence from Nigeria

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Abstract

Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981–2015. Using an autoregressive distributed lag model, our findings show that financial reforms have a positive and significant impact on industrialisation.

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Fig. 1

Source: Based on underlining data from PCA analysis

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Notes

  1. Other reforms implemented include trade reforms and exchange rate reforms.

  2. The implementation of repressed policies was driven by its passive gained such as cheap tax revenue to the government (Gibson and Tsakalatos 1994; Fowowe 2013).

  3. The studies by Fowowe (2008) and Owusu and Odhiambo (2014) on the effect of financial liberalisation also utilised financial reform index to address the issue of incomplete effect associated with the use of a singular measure.

  4. Bulk of the literature on the impact of financial liberalisation in developing countries focused on economic with little on industrialisation. This paper extends the study on the impact of financial liberalisation by examining its impact on industrialisation.

  5. The final score for this dimension involved the use of the weight of two subsections (see Abiad et al. 2010, p. 296 for details).

  6. The method used in the study was found to be highly correlated with the other two methods. The correlation coefficient is higher than 95% for both measures.

  7. The study period started in 1981 and not 1987 when financial reforms started. Our decision was informed by two factors: first, the need to have a relatively large sample size that is sufficient for econometric analysis, and second, the need to incorporate pre and post reform period. This is important because the measure of financial reforms used in the study captures gradual implementation of the reform. Hence, there is need to combine periods before the implementation as well as periods after commencement of the reforms, while the ending date (2015) was informed by data available.

  8. Detailed information on financial reforms in Nigeria has been explained and can be found in “Construction of financial reform index” section.

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Acknowledgements

The author is indebted to the editor and the reviewers for insightful comments. Also, the author wishes to thank Babajide Fowowe, Oluwatosin Adeniyi, Simplice Asongu, Abimbola Oyinlola and Ekpeno Effiong for their inputs in strengthening the quality of this paper.

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  1. Department of Economics, University of Ibadan, Ibadan, Nigeria

    Oludele Emmanuel Folarin

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Correspondence to Oludele Emmanuel Folarin.

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Folarin, O.E. Financial reforms and industrialisation: evidence from Nigeria. J. Soc. Econ. Dev. 21, 166–189 (2019). https://doi.org/10.1007/s40847-019-00075-z

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