Oil Rent and Financial Development : Evidence from Nigeria

This study examined the relationship between oil dependence and financial development in a developing oil producing economy taking into consideration, the banking sector and capital market forces for the period 1981-2015. The techniques employed include Johansen Cointegration test, vector error correction model and Granger causality test. The results revealed the existence of a long run relationship between oil dependence and financial development in Nigeria; oil rent has a short run effect on banking sector development, and the absence of a short run relationship between oil rent and capital market development. Based on these findings, it is recommended that oil rents should be better managed due to the uncertainty and volatility in the oil market and distortion in the extracting of crude oil. Furthermore, the Nigerian government should provide and increase financial sector credit for productive investment purposes that can support economic growth to reduce oil dependency and encourage diversification in economic activities