Investigating the Effects of Efficiency of Financial Institutions: Implications for Economic Growth in Nigeria

Nigeria has been facing financial challenges through the decade. The economy has suffered several financial disequilibria ranging from wide swings in exchange rates to fluctuating price levels. This has prompted governmental authorities to adopt several economic and financial policy mix. Despite financial sector reforms in Nigeria, economic growth has remained volatile, raising concerns about whether improved efficiency of financial institutions is sufficient to stimulate sustainable growth. Hence, this study investigated the impact of the efficiency of financial institutions on economic growth in Nigeria. Data used for the study spanned from 1985-2024, and were sourced from the World Development Indicators (WDI) and International Monetary Fund (IMF) Financial Development Indicators. The study employed the Dynamic Ordinary Least Squares (DOLS) estimator, which effectively addresses key econometric challenges such as endogeneity and serial correlation, thereby providing more reliable long-run estimates. The findings provide strong empirical evidence that efficiency of financial institutions play a significant role in promoting economic growth in Nigeria. Efficiency of financial institutions had significant and positive effects on Nigeria’s economic growth. Therefore, it is imperative that government and regulators should improve institutional efficiency through stronger regulation, governance, and FinTech adoption, and maintain a stable supervisory environment to enhance confidence, productive lending, and long-term economic growth. In addition, government should enhance the governance level in maintaining transparency in the financial institutions. This can be achieved through the regulating of existing financial authorities and their regulatory bodies. A robust efficiency of the financial institutions in Nigeria will result in a holistic developmental process.