DYNAMIC EFFECT OF TRADE OPENNESS ON FINANCIAL DEVELOPMENT 1981-2021 ARDL BOUND TEST APPROACH: EVIDENCE FROM NIGERIA

Abstract

Global economic integration has been proven to be a powerful mean of achieving financial development through which economic growth is promoted in countries. Despite the significance contribution and the rising figures of Nigeria’s trade openness, the recent update of country’s financial development reflected decrease. The paper examines the effect of trade openness on financial development in Nigeria, covering the period of 1981-2021. To check the existence of long and short run relationship the study employed Auto regressive distributive lag (ARDL) techniques of estimation. The estimated result found that, trade openness has positive and statically significant impact on financial development (FND), at 5% level of significance in the long run and insignificance in the short run equilibrium. Following the findings, the study made recommendation for a policy implication; there is need to form comprehensive economic policies that will improve exportation of goods, enhance productivity, encourage savings culture and promote capital accumulation and be more open to trade with other countries especially trough land border. And to diversify the country’s economic sector by expansion and reviving mining sector, agriculture and tourism sectors, these could be a vital tool for strengthening the country’s trade openness and improve financial sector development.