– The purpose of this study is to propose a framework for conceptualizing the finance-growth theory in developing economies.
– The study uses a cointegration and error correction model to investigate the possible influence of key socio-political characters of a state on the causal relationship between financial development and economic growth. A developing economy (Nigeria) which had experienced decades of autocratic military governance was studied. Three characters of the state (ethnicity, civil war and military governance) were derived from a historical review and were introduced into the cointegration analysis as dummy variables.
– Evidence of a causal relationship was found to exist from financial development to economic growth and the characters of the state were found to have no significant impact on this relationship.
– The research limitations were based on the reliability of data recorded between 1960 and 2007.
– This study is practical from the point of view of the integration of qualitative social disturbances into a quantitative model targeted at exploring the practical developmental impact these disturbances may have had and continue to have on economic growth.
– The social implication of this study stems from the impact that adverse socio-political influences may have on financial development and economic growth.
– This is an original piece of research focused at understanding the unique social, political and macroeconomic circumstance of a strategically relevant developing economy.
