Financial Development and Inclusive Growth in Nigeria: A Threshold Analysis

This study investigates the relationship between financial development and inclusive growth in Nigeria for the period 1980 – 2013. The technique of analysis is the quantile regression; which is to obtain a threshold for which the former impacts on the latter. The result shows a threshold level of 90th percentile. Interestingly, the study also found that the impact of financial development on inclusive growth depends on the measure of the former up to the threshold level and not beyond. Through a granger causality test, the direction of causality is through the inclusive growth rather than through financial development; through the financial deepening measure. While the study found that either a low level or high level of openness on trade and capital investment are desirable for inclusive growth in Nigeria, the results also reveal that government involvement in the workings of the Nigeria economy and financial openness are sensitive to the pattern of financial development. With financial deepening, both are negatively related to inclusive growth but positively related to inclusive growth when financial widening is considered. This suggests that government intervention in the activities of the private sector is detrimental when the latter are to drive financial development process. However, the involvement of government in ensuring the appropriate level of financial widening, through the central bank operations, produces a positive impact on growth