Formal Credit Markets and Entrepreneurial Discrimination in a Developing Economy: A New Evidence from Nigeria

Abstract

This study investigated the channels through which shocks from Foreign Capital Inflows and Financial Development are transmitted to Economic Growth in the ECOWAS region using quarterly data 2000-2017. The work adopted the Panel Vector Auto Regression (PVAR) model in a Generalized Method of Moments framework to actualize its objective. The empirical results showed that Foreign Direct Investment (FDI), Net Domestic Credit (CRE), and Economic Growth (ECG) all have significant relationships with each other, while Gross Capital Formation (GCF), labour force (LF), and Foreign Aid (AID) had significant relationships with FDI, CRE and ECG. Furthermore, FDI and CRE in the short-run had negative relationship with economic growth but had positive impulse response functions with economic growth in the long run. FDI and CRE exhibited positive relationship between themselves in the short run and negative relationship in the long run. Thus, the study recommends that concerned policy makers should pursue financial deepening and enact credible policies that will strengthen the financial system. In addition, a conducive socio-economic environment should be actively maintained so as to attract the required foreign capital inflows. Finally, more efforts should be made towards the establishment of a single monetary union, for better policy results.

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