Causal relationship between financial development and trade openness

This paper examines the causal relationship between fiscal development, trade openness and economic growing while commanding for existent involvement rate in Nigeria. It uses one-year informations for the period 1961-2007 and applies multivariate VAR model. A important long-term relationship between GDP per capita ; existent involvement rate, trade openness, and fiscal development is established. No cointegration is established utilizing fiscal development index. However, utilizing two other fiscal indexs, bank recognition to private sector and liquid liabilities, the survey establishes one cointegration each. In the Long-run, there is weak grounds that finance and trade openness lead economic growing.

Introduction

The survey of fiscal development and economic growing has long been established in the literature. This can be found in the work of Schumpeter ( 1911 ) , Robinson ( 1952 ) , Gurley and Shaw ( 1955 ) . The thought got popularised through the hypothesis of McKinnon ( 1973 ) and Shaw ( 1973 ) . However, one of the combative issues in the survey of fiscal development and economic growing particularly in clip series surveies is the way of causality. Patrick ( 1966 ) explains that finance can take to economic growing through what he footings the “ supply-leading ” hypothesis ; and every bit that economic growing can besides excite fiscal development – he calls this the “ demand following ” hypothesis. Ever since the preparation of this hypothesis, empirical decisions on the way of causality between fiscal development and economic growing have remained inconclusive.

Evidence from cross-sectional surveies, peculiarly the survey by King and Levine ( 1993 ) , indicates that fiscal development does hold a positive impact on economic growing. However, consequences from time-series informations contradict these findings. Demetriades and Hussein ( 1996 ) and Arestis and Demetriades ( 1997 ) place the form of causality that varies across states.

In recent old ages at that place has been an addition in the application of multivariate VAR theoretical account to time-series surveies on fiscal development and economic growing. Prominent among these include Luintel and Khan ( 1999 ) , Chang and Caudill ( 2005 ) , Liang and Teng ( 2006 ) , Ang and Mckibbin ( 2007 ) Abu-Badr and Abu-Qarn ( 2008 ) , Ang ( 2008 ) , Handa and Khan ( 2008 ) , Masih et Al. ( 2009 ) , Gries et Al. ( 2009 ) and Wolde-Rafael ( 2009 ) . This is because harmonizing to the endogenous growing theoretical accounts the interaction between fiscal development and growing frequently occurs through a figure of channels for illustration, through investing, productiveness and nest eggs. Therefore, recent empirical plants are now researching some of these channels through the application of multivariate VAR methodological analysis. This paper follows this attack of multivariate VAR theoretical account for the instance of Nigeria to analyze the relationship between finance, trade openness and economic growing while commanding for the consequence of existent involvement rate.

In the 1970s, the Nigerian fiscal system was dominated by policies of fiscal repression which included involvement rate controls, selective recognition guidelines and fixed exchange rate governments and authorities owned Bankss. These challenges necessitated the Federal Government ‘s acceptance of the Structural Adjustment plan ( SAP ) in 1986. This is a policy papers of fiscal liberalisation that significantly restructured the Nigerian fiscal system in line with free market rules.

The pick of Nigeria for this survey is due two grounds: foremost, is the of import function of the Nigerian economic system in West Africa part and Africa in general. Nigeria is the most thickly settled state in Africa ( 150 million people ) and the 2nd biggest economic system in the continent and the biggest in the West Africa sub-region contributing over 41 % of GDP of the full West Africa, ( World Bank, 2009 ) . Second is the handiness of informations and rich experience of Nigeria in fiscal sector reforms.

The aim of this paper is to analyze the long-term causality between fiscal development, trade openness and economic growing. It applies the recent long-term structural modeling of Pesaran and Shin ( 2002 ) and besides uses the Wald trial to analyze Vector-error rectification ( VECM ) – based short-term Granger causality. Gries et Al. ( 2009 ) uses multivariate vector autoregression in their survey for the 16 Sub-Saharan Africa states including Nigeria. This survey nevertheless departs from this and other earlier plants in Nigeria and thereby contributes to the cognition in the undermentioned ways:

The survey applies a new information set with a longer period of observations ( 1961-2007 ) and besides controls for the consequence of existent involvement rate, which old surveies have non done for the instance of Nigeria. This helps to minimise the job of omitted variables.

The survey applies the long-term structural mold of Pesaran and Shin ( 2002 ) , which allows the usage of economic theories to actuate the long-term relationship between fiscal development, economic growing and other determiners of growing.

This survey besides uses the discrepancy decomposition ( VDC ) and impulse response maps ( IRF ) . The VDC easy captures the comparative grade of exogeneity and endogeneity of the variables in the VAR system. While IRF captures the general moral force of the responses to the dazes in the system.

To let for hardiness, this survey uses three unit root trials: ADF, KPSS and Zivot and Andrew endogenous structural interruption trials.

The survey nevertheless uses three theoretical accounts based on the three indexs of fiscal development ; Model ( A ) uses fiscal development index ( DEPTH ) , Model ( B ) and ( C ) apply bank recognition to the private sector ( BCP ) and bank liquid liabilities ( LL ) severally. Other variables included in the theoretical accounts are: existent GDP per capita ( GDP ) , existent involvement rate ( RR ) and trade openness ( TOP ) .

The survey establishes important long-term relationship between GDP per capita, existent involvement rate, trade openness and fiscal development. The consequences from long-term causality trials indicate unidirectional causality from economic growing to fiscal development utilizing the index of bank recognition to private sector, ( BCP ) while the liquid liabilities ( LL ) reveals bidirectional causality between fiscal development and economic growing. The survey could non set up any cointegration utilizing fiscal development index and this is in contrast with the determination of Gries et Al. ( 2009 ) determination of one cointegrating vector. Following this debut, this survey is organised as follows: Section 2 is the literature reappraisal. Section 3 discusses the empirical theoretical account, measuring and beginnings of informations. Section 4 provides the empirical consequences of the survey. Section 5 concludes the survey.

LITERATURE REVIEW

Schumpeter ( 1911 ) , McKinnon-Shaw ( 1973 ) and McKinnon-Shaw ( 1973 ) argue that finance can advance growing through invention and a decentralised fiscal system. This analysis became popularised through the endogenous growing theoretical accounts of Fry ( 1988 ) , Greenwood and Jovanovic ( 1990 ) Bencivenga and Smith ( 1991 ) , Pagano ( 1993 ) and Berthelemy and Varoudakis ( 1996 ) . While, Pagano ( 1993 ) explains that fiscal development can impact growing through the efficiency of fiscal intermediation, societal fringy productiveness of capital and private nest eggs. Others argue that through hazard pooling and analysis of information on viing engineerings of production, finance can advance economic growing. Meanwhile, Lucas ( 1988 ) and Chandavarka ( 1992 ) argue contrary to the positive function of fiscal development on economic growing.

As explained above, the interaction between fiscal development and economic growing frequently occurs through a figure of channels. This survey hence applies multivariate VAR to the survey of finance and growing in Nigeria by adding trade openness and existent involvement rate. It is believed that these extra variables could supply effectual channels through which fiscal development influences economic growing.

Trade openness: This variable is added because of the of import function the international trade has been playing in the economic development of Nigeria. Beck ( 2002 ) provides a formal nexus between international trade and fiscal development. His consequence indicates that the better the fiscal system of a state, the higher the portions of manufactured export/GDP. Svaleryd and Vlachos ( 2002 ) happen a important relationship between fiscal development and trade openness. Svaleryd and Vlachos ( 2005 ) further indicate that fiscal sector is a beginning of comparative advantage. Rajan and Zingales ( 2003 ) explain through their involvement group theory of fiscal development suggests that coincident openness of both trade and finance promotes fiscal development. Baltagi et Al. ( 2009 ) through panel informations for both developed and developing states show that trade openness does hold important impact on fiscal development. On the relationship between trade openness and economic growing, empirical findings have besides provided grounds that trade openness does hold positive impact on economic growing. This can be found in the work of Sachs and Warner ( 1997 ) , Dollar and Kraay ( 2004 ) and Freund and Bolaky ( 2008 )

Real involvement rate: McKinnon ( 1973 ) and Shaw ( 1973 ) have shown that liberalising the involvement rates will take to a positive involvement rate which in bend exerts positive consequence on mean productive capital taking to efficiency of investing and therefore economic growing. World Bank ( 1989 ) , Fry ( 1997 ) , King and Levine ( 1993 ) and Beck et Al. ( 2000 ) have all reveal a positive and important relationship between mean economic growing and existent involvement rate. However, survey by ( McKinnon and Pill, 1997 ) , Hellmann et Al. ( 2000 ) and Demirguc-Kunt and Detragiache, ( 1998a and 1998b ) have argued that liberalising involvement rate may take to weaker banking system and broad spread fiscal crises.

Most time-series probes on the way of causality between fiscal development and economic growing in Africa have obtained different decisions. From illustration, Ghirmay ( 2004 ) Atindehou et Al. ( 2005 ) Odhiambo ( 2007 ) Abu-Badr and Abu-Qarn ( 2008 ) , Gries et Al. ( 2009 ) and Wolde-Rafael ( 2009 ) all use time-series and VAR and obtain different decisions.

EMPIRICAL MODEL

The paper starts by proving the stationarity belongings of the single series in the sample. Three unit root trials are performed: Augmented Dickey-Fuller ( ADF ) , Kwiatkowski, Phillips, Schmidt and Shin ( KPSS ) and Zivot and Andrews ( 1992 ) endogenous structural interruption trials.

Gregory ( 1994 ) , and Volgelsang and Perron ( 1998 ) have shown that both augmented Dickey Fuller ( ADF ) and Philip-Perron ( PP ) exhibit high size deformation: that is, a chance of accepting a false nothing and besides wrong chance of rejecting a true nothing. To avoid these jobs and to let for hardiness, this survey uses the endogenous structural interruption trial of Zivot and Andrews ( 1992 ) , which is specified below:

Model A:

Model Bacillus:

Model C: ( 1 )

Model A presents a alteration in the degree of the series ; Model B presents a alteration in the tendency map, and eventually Model C nowadayss changes both in the degree and in the tendency map of the series severally.

Where and are the dummy variables for the displacement in degree and in the incline severally and is the optimum slowdown. The equation is so consecutive estimated over all possible interruption day of the months by ciphering the minimal t-statistics for the estimated coefficients.

The paper uses Johansen ‘s ( 1988, 1992 ) model of maximal likeliness to find the figure of cointegrating vectors. Once the variables are I ( 1 ) series, Johansen theoretical account can be reparameterized in a vector mistake rectification theoretical account ( VECM )

( 2 )

Where41 vector of intercept and = ( GDP, FD, RR, TOP ) is 41 vector of the incorporate variables, are 44 coefficient matrices, and is white noise remainders, i.e. Where GDP is the GDP per capita ; FD is the fiscal development represented by bank recognition to private sector ( BCP ) , domestic recognition to private sector ( DCP ) , and bank sedimentation liabilities ( LL ) severally. RR is existent involvement rate and TOP represents trade openness. If all variables are I ( 1 ) and cointegrated ( this means that is a rank deficient and can be decomposed in such manner that = where the matrix is the mistake accommodation coefficients and the matrix is the cointegrating vector. Given this, equation ( 3 ) can be represented as:

( 3 )

Where is the stationary procedure of the cointegrating vectors.

Pesaranand Shin ( 2002 ) , explain the designation job that is associated with of cointegrating vectors of Johansen model. They show that Johansen VAR theoretical account is non unambiguously identified because it is based on the graduated table of informations instead than on economic theory.

Therefore, to work out this job, they suggest the trial of over-identifying limitation which allows the usage of economic theory through the trial of ( where ) limitations, where is the just-identifying limitation and is used for the over-identifying limitation. The paper hence follows this attack to actuate long-term relationship utilizing economic theory. However, when merely one cointegration is established, we merely enforce a normalisation limitation. Wickens ( 1996 ) points out that for the limitations to be valid, the accommodation coefficients must be statistically important and their marks must be negative.

The survey applies two types of causality trials: a ) The weak exogeneity trial and B ) the short-term Granger non causality trial. Johansen and Julius, ( 1992 ) and Hall and Milne ( 1994 ) have shown that weak exogeneity in a cointegrated system is a impression of long-term causality. Harmonizing to Engle and Granger ( 1987 ) one time a set of variables are I ( 1 ) and a cointegration has been established, any dynamic analysis should integrate the mistake rectification mechanism which measures the divergence from the long-term equilibrium. The short-term causality is examined through the VECM based Granger non-causality utilizing the Wald trial.

This survey farther examines discrepancy decomposition ( VDC ) and the impulse response map ( IRF ) . Variance decomposition or calculate error-variance examines the per centum of invention each variable is lending to the other variables in the VAR system. This enables us to cognize which of the variables is comparatively endogenous or exogenic to the system. The impulse response map is used to follow the clip way of structural dazes in the VAR system. One of the common methods used to analyze the clip way of the daze is the Sims ( 1980 ) model of cholesky decomposition. This attack nevertheless has been criticised on the evidences that it is rather sensitive to the ordination of the variables in the system. This is because it is non alone as mistakes in the system are extraneous to each other, bespeaking that they are contemporaneously uncorrelated with standard mistakes. To work out this job, the survey adopts the Generalized impulse response map ( GIRF ) of Pesaran and Shin ( 1998 ) . This method is invariant to the ordination of the variables in the VAR system.

A Data and Measurement

The paper employs one-year informations from 1961-2007 and uses four variables: Gross Domestic Product per capita ( GDP ) , existent involvement rate ( RR ) , trade ratio ( TOP ) , and fiscal development represented by bank recognition to the private sector ( BCP ) , domestic recognition to the private sector ( DCP ) and liquid liabilities ( LL ) . All the information series are transformed into logarithms except for existent involvement rate and all are obtained from the Financial Development and Structure Database of Beck, Demirguc-Kunt, and Levine ( 2009 ) , updated in April 2010. The Penn World Table, version 6.3 compiled by Heston, Summers and Aten ( 2009 ) and Central Bank of Nigeria statistical bulletin ( 2009 ) .

Financial development encompasses quality and measure of investing, exchanges of goods and services, salvaging mobilization, and direction of hazard. These maps can non be captured by a individual measuring. Therefore, the kernel of utilizing three fiscal indexs is to let for hardiness so as to corroborate whether a consistent consequence could be obtained utilizing different placeholders.

The first step of fiscal development used in this survey is the bank recognition to private sector ( BCP ) . It is measured as bank recognition to private sector divided by GDP. This proxy harmonizing to Beck et Al. ( 2000 ) is superior to other steps of fiscal development because it excludes recognition to the populace sector and better reflects the extent of efficient resources allotment. The 2nd step of fiscal development used in this survey is domestic recognition to the private sector ( DCP ) . This includes both credits of sedimentation money Bankss and other fiscal establishments. The 3rd step is the liquid liabilities ( LL ) to nominal GDP. Ang and McKibbin ( 2007 ) explain that there is no wide consensus among economic experts on which of the placeholders of fiscal development is the best measuring and more so these placeholders are extremely correlated. Therefore, it may be necessary to build an index through the chief constituent analysis ( PCA ) in order to cut down the consequence of multicollinearity. The survey adopts this attack of Ang and McKibbin ( 2007 ) to build the fiscal development index through the PCA utilizing the three fiscal development placeholders. Other steps include the existent involvement rate ( RR ) and it is measured by the bank loaning rate deflated by the CPI and the trade openness ( TOP ) measured as a ratio of import plus export divided by nominal GDP.

Table 1 below nowadayss the consequence of the chief constituent analysis. It shows the index of fiscal development from the placeholders of fiscal indexs, bank recognition to private sector, domestic recognition to private sector and liquid liabilities. The first characteristic root of a square matrix indicates that 93.8 % of fluctuation is captured by the first chief constituent while the 2nd chief constituent explains 5.4 % of the entire fluctuation. The 3rd chief constituent histories for merely 0.7 % of the entire fluctuation. From the tabular array it shows that the first chief constituent is the best step of the index since it captures about 94 % of the information from these placeholders. It besides shows the first vector with about equal weight bespeaking a similar form. For this ground, we choose the first chief constituent, PC1.

Table1

V. EMPIRICAL RESULTS

A. Unit root trial

The consequences from table 2 below reveal that all the variables, BCP, DCP, LL, GDP, RR, and TOP are non stationary at degree but merely at first difference except for RR which is I ( 0 ) based on the KPSS trial.

The Zivot and Andrews ( ZA ) structural break trial is presented in table 3. The grounds from the tabular array supports the ADF and KPSS trial severally which indicate that all the variables are I ( 1 ) . Model C is the most appropriate theoretical account except for bank recognition and existent involvement rate where theoretical account A is the appropriate theoretical account. The interruption day of the months are 1985 for LL and RR, 1986 for both BCP and DEPTH severally while 1987 for DCP. 1995 is the interruption day of the month for GDP and 1999 is for TOP.

Table 2

Table 3

B. Johansen cointegration Trial

The tabular array 4 presents the consequence of the cointegration for theoretical account ( A ) utilizing fiscal development Index ( DEPTH ) . The survey uses the Lagrange Multiplier ( LM ) trial to analyze the grounds of consecutive correlativity in the remainders. The slowdown order choice is based on consecutive modified trial statistic ( LR ) , Final anticipation mistake ( FPE ) , Akaike information standard ( AIC ) , Schwarz information standard ( SC ) and: Hannan-Quinn information standard ( HR ) standard. Lag order 1 is selected for this theoretical account. The consequence of the LM trial statistics at slowdown 1 indicates no consecutive correlativity in remainders, ( 0.2564 ) . The tabular array indicates no grounds of cointegration both from the hint trial statistics and maximal eigenvalue statistics.

Table 4

C. Robustness Test

It is apparent from the theoretical account ( A ) that there is no long-term relationship utilizing fiscal development index ( DEPTH ) . The survey, hence, uses two other indexs of fiscal development, BCP and LL in the multivariate VAR model to analyze whether a cointegration could be established. The cointegration trial as shown below in the tabular arraies 5 and 6 indicate grounds of one cointegrating vector for both the hint and maximal eigenvalue trials and both are important at 1 % and 5 % severally[ 1 ]. The slowdown choice standards suggest slowdown 5 and 3 for theoretical account B and C severally. The LM trial suggests no grounds of consecutive correlativity at selected slowdown in the both theoretical accounts demoing ( 0.1596 ) and ( 0.9487 ) severally.

Table5

Table 6

The long-term coefficient snaps of the cointegrating vector are examined by following the long-term structural modeling of Pesaran and Shin ( 2002 ) . However, since there is merely one cointegrating vector from the Johansen cointegration trial, the survey imposes standardization limitation merely on the GDP per capita. These consequences are presented below in table 7.

The cointegrating vector of Model B shows that all the cointegrating coefficients are statistically important at 1 % degree with the exclusion of fiscal development index ( bank recognition to private sector ) which although is positive but non statistically important. The GDP per capita ( GDP ) indicates a positive map of existent involvement rate and trade openness ( TOP ) . Therefore, as predicted by finance and growing literature, the existent involvement rate has shown a positive productiveness consequence on the GDP per capita. This is in line with the findings of the World Bank ( 1989 ) , Fry ( 1997 ) , King and Levine ( 1993 ) and Beck et Al. ( 2000 ) . On the trade openness, the consequence is besides consistent with theory and empirical findings of Sachs and Warner ( 1997 ) , Dollar and Kraay ( 2004 ) and Freund and Bolaky ( 2008 ) . The mistake rectification coefficient is correctively signed ( negative ) and statistically important at 1 % degree. It merely measures the velocity of accommodation of GDP per capita to the long-term equilibrium. The accommodation velocity in the cointegrating vector of theoretical account B is approximately 24.2 % . Model C on the other manus uses liquid liabilities as a placeholder of fiscal development. It shows that fiscal development, GDP per capita, trade openness and existent involvement rate are positively related and all the cointegrating coefficients are statistically important at 1 % degree. The positive relationship between the GDP per capita and fiscal development is in line with the anticipations of the endogenous growing theoretical accounts of Greenwood and Jovanovic ( 1990 ) , Pagano ( 1993 ) and Levine ( 1993 ) . Besides the positive relationship between trade openness and fiscal development is in line with the empirical findings of Svaleryd and Vlachos ( 2002 ) , Svaleryd and Vlachos ( 2005 ) and Baltagi et Al. ( 2009 ) . The loading factor is besides statistically important with right mark ( negative ) and with adjustment velocity of 15.22 % .

Table 7

D Causality Trials

This survey examines the issue of causality in two parts. The first portion is the VECM based Granger causality utilizing Wald trial and the 2nd portion is the long-term causality utilizing the weak exogeneity trial. It should nevertheless be noted that theoretical account A is dropped from the causality trial since there is no grounds of cointegration. Therefore, the causality trials are merely based on Models B and C severally.

The consequences of the short-term causality are presented in table 10 for both Model ( B ) and Model ( C ) severally. The consequences for Model B which uses bank recognition to private sector indicate that there is no short-term causality between fiscal development and economic growing. There is nevertheless bidirectional Granger causality between trade openness and fiscal development. It farther indicates bidirectional Granger causality between economic growing and trade openness. There is no short-term farmer causality between existent involvement rate and fiscal development. Model C, which uses Liquid liabilities, shows that in the short-run, fiscal development Granger causes economic growing. However, there is no feedback consequence from the economic growing. There is besides no short-term Granger causality between trade openness and fiscal development which is non consistent with the consequence of Model B. Meanwhile, there is bidirectional causality between trade openness and economic growing. This is consistent with the consequence obtained in the Model B. The causality between existent involvement rate and fiscal development indicate grounds of non short-term causality which besides makes it consistent with Model B.

Table 9 presents the weak exogeneity/long-run causality trial. Model B indicates unidirectional causality from economic growing to fiscal development as there is no feedback consequence from fiscal development. However, there is bidirectional causality between trade openness and economic growing. Model B farther indicates unidirectional causality from trade openness to fiscal development, which is consistent with the empirical findings of Baltagi et Al. ( 2009 ) . There is no long-term causality between existent involvement rate and fiscal development. Model C, which uses liquid liabilities indicates bidirectional causality between fiscal development and economic growing. It every bit besides indicates bidirectional causality between fiscal development and trade openness and besides economic growing. Meanwhile, in the long-run, the causality is unidirectional from fiscal development to existent involvement rate.

Table 8

Table 9

E Variance Decomposition and Impulse Response Function

Table 10 presents the discrepancy decomposition estimations for Model B[ 2 ]. The prognosis skyline is for 10 old ages and the part of each variable ain daze and to the dazes of other variables in the system are explained below: It indicates that the part of each variable to its ain daze in explicating the proportion of prognosis mistake discrepancy at the terminal of 10 old ages skyline are 58 % for the DGDP, 36 % for the DBCP, 30 % and 63 % for the DTOP and DRLR severally. The consequences further show that fiscal development represented by bank recognition to private sector explains merely 11 % of the fluctuation in GDP while GDP explains 38 % fluctuation in BCP, this indicates that GDP is the most exogenic and it is taking fiscal development. Trade openness merely explains 5 % of the fluctuation in GDP and GDP on the other manus explain 32 % of the fluctuation in trade openness. This still indicates that GDP is the most exogenic variable and thereby doing a prima index.

Table10

Figure 1 below shows that at the initial phase the responses of GDP and BCP are mostly due to their ain dazes while that of GDP remains systematically high and positive. BCP index nevertheless continues to worsen and go negative at the 8th twelvemonth. While the response of GDP to BCP is negative that of BCP to GDP is positive. The continuity of the dazes for both GDP and BCP continues even after the 10th period. This indicates unidirectional causality from economic growing to fiscal development. The figure indicates that the daze of trade openness is chiefly due to its ain daze. The responses of trade openness to GDP daze and GDP to the daze of trade openness are positive throughout the time-horizon. This shows that the way of causality is bidirectional between trade openness and economic growing. The response of trade openness to the daze of fiscal development is negative while fiscal development to the daze of trade openness shows a positive tendency from the 4th twelvemonth. This indicates unidirectional causality from trade openness to fiscal development.

Figure 1

VI. Decision

This paper examines the causal relationship between fiscal development, trade openness and economic growing in Nigeria. The survey uses multivariate VAR model, Variance Decomposition ( VDC ) and Impulse response ( IRF ) . Three fiscal indexs are used: bank recognition to private sector ( BCP ) , liquid liabilities ( LL ) and domestic recognition to private sector ( DCP ) . A step of fiscal development index is obtained from these three indexs. No cointegration is established utilizing fiscal development index and this contrast with the determination of Gries et Al. ( 2009 ) . However, utilizing bank recognition to private sector and liquid liabilities the survey establishes one cointegration each. There is no short-term causality between fiscal development and economic growing utilizing bank recognition to private sector, but liquid liabilities ( LL ) indicates unidirectional causality from finance to economic growing. In the Long-run, there is strong grounds that economic growing leads fiscal development utilizing bank recognition to private sector thereby back uping the demand following hypothesis. However, with the liquid liabilities ( LL ) the long-term causality is bidirectional between fiscal development and economic growing. Therefore, in the overall, fiscal development has non led growing for the instance of Nigeria. There is besides a weak causal relationship between trade openness and economic growing utilizing the two fiscal indexs.

The policy deduction of these consequences for Nigeria: It shows that at present, there is weak nexus between the existent sector and the fiscal system. The degree of trade openness is besides weak with economic growing. This shows that finance and trade openness have non been really effectual in advancing economic growing in Nigeria. The Nigerian fiscal system may hold performed comparatively good in mobilising financess but has non been effectual in apportioning resources to the existent sector of the economic system. Therefore, pecuniary governments must prosecute appropriate policies that guarantee Bankss provide necessary financess to the existent sector of the economic system peculiarly agribusiness and fabrication over medium and long-run period.