FINANCIAL INTERMEDIATION AND ECONOMIC GROWTH: EVIDENCE FROM COTTAGE INDUSTRIES IN NIGERIA

Abstract

The Economic development of every nation depends on their capability of effective co-ordination of its financial system. The bed rock and most sensitive aspect of the financial system activity is its financial intermediation role between the deficit economic unit and surplus economic unit. Most work reviewed empirically showed various author’s concentration on financial intermediation and economic growth of various countries. This paper therefore seeks to examine the same variable with special attention to micro – deficit economic unit and micro surplus economic unit. The factors that arouse the interest of the writers on this area are (1) there are more of cottage industries in Nigeria as a developing country. (2)the financial activities of these cottage industries are ignored in the financial system in developing nations. The study therefore adopted the ex-post facto research design. The time series data from 1992 – 2015 were collected from secondary sources and Unit Root Test, Erger Greager Co-integration Test and Error Correction Model(ECM) were used to estimate the hypothesis formulated in line with the objectives of the study. The research then contributes that: (1) Loans given to cottage industries by conventional banks have no significant relationship with the Nigeria economic growth.  (2) Loans to Micro Deficit Economic Unit (MDEU) by micro finance institution have significant relationship with Nigeria Economic growth and also (3) The Deposit of Micro – Surplus Economic Unit (MSEU) with the Micro Finance institution has a significant relationship with the Nigeria Economic Growth. This study therefore recommends amongst others that:  (1) Cottage Industries in Nigeria should be encouraged and modernized. (2) At early stage, the government should not be imposing much levies on the cottage and small – scale entrepreneurs and the government should also be providing them with social amenities like: electricity, water, road etc.