Assessing the links between banking sector and human development in Nigeria: Evidence from 1981 - 2023

The financial sector is central to any economy, as it is responsible for the mobilization and allocation of credit. In Nigeria, as in many developing nations, the banking sector is the most dominant part of the financial system. It is in light of the above that the study investigated the link between banking sector development and human development in Nigeria. The study utilized secondary data from 1981 to 2023, which was analyzed using an error correction model. The findings indicated a positive correlation at a 5% significance level between economic development, proxied by the Human Development Index (HDI), and banking sector development (PSC/GDP), aligning with theoretical expectations. Specifically, a 1% increase in the growth rate of PSC/GDP three years prior is associated with a 0.019% increase in the current growth rate of HDI, ceteris paribus, implying that improvements in the banking sector contribute positively to economic development. Conversely, gross domestic investment as a proportion of gross domestic product (GDI/GDP) demonstrated a significant lagged negative impact on economic development (HDI). Consequently, the study recommended that monetary authorities in Nigeria should implement policy measures to enhance investment in areas that foster human capital development, ultimately leading to increased economic development.