The character of the state in financial development and economic growth
thesisposted on 30.03.2012, 11:12 by Godfrey Chidozie Uzonwanne
This study involved an analysis of how the character of a state inadvertently defines the trajectory of financial development of the state and its resultant impact/causality on economic growth. The guiding theme here is that the finance growth theory (Schumpeter 1911, Goldsmith 1969) has its fundamental root in the demographics of western economies with proven functional and stable political and social institutions. The direct applicability of this theory to the explanation of financial and macroeconomic phenomena in developing economies with a unique set of distinct characters may prove erroneous. To analyse this assertion, a developing economy (Nigeria) which had experienced decades of autocratic military governance was studied using a mixed method research design to gather and analyse data. Under this approach, triangulation of three data sources was achieved to augment for the problem of reliability of data sources. A historical case review was conducted using secondary data. This was followed by an econometric analysis to determine the direction of causality of financial development on economic growth applying the vector co-integration analysis and the Granger Causality test using time series data relating to Real GDP Per Capita, Size, Activity and Efficiency of Financial Intermediaries and the Stock Market in Nigeria and dummy variables to represent socio-political characters identified from the historical analysis. Finally, primary data was generated by questionnaire and group interview as a means of validating the findings from the historical case review and the econometric analysis as well as completing the triangulation of data sources. The historical review revealed three major characters represented by ethnicity in which prebendalism was strongly inherent, social unrest culminating in a three year long civil war and persistence of autocratic military governance and civilian democracies tutored by military dictators while the econometric analysis revealed the presence of macroeconomic structures identifying at least one co-integrating vector but the causality test showed no indication of causality between financial development and economic growth irrespective of steadily rising annual figures for Real GDP Per Capita and indicators of positive financial development. It was concluded that the character of a state in developing economies whose characters form a unique parabola of activities that are not prevalent in western democracies where this theory finds its origin is an endogenous variable in determining the impact of financial development on economic growth.