Financial Intermediation and Growth Performance in Nigeria: A Harrod–Domar Perspective

Abstract

This study explores the relevance of the Harrod-Domar Growth Model inside Nigerian financial intermediation by exploring how effectively banking sector operations channel savings into productive investments that foster economic growth. The research design adopted is ex post facto using annual data from 2010 to 2024 of selected listed deposit money banks in Nigeria. The empirical analysis applies the Autoregressive Distributed Lag (ARDL) model to evaluate the short run and long run link between deposit mobilisation, bank lending, capital–output ratio, bank size and economic growth. The results show the existence of a steady long run link between banking sector intermediation factors and economic growth in Nigeria. Deposit mobilisation has a positive and marginally significant impact on growth, but bank lending shows a negative significant long-run link, indicating inefficiencies in credit allocation and investment transmission. The capital-output ratio is significant and positively related to economic growth, contrary to the standard prediction of Harrod-Domar indicating that times of intensive capital accumulation and infrastructural expansion may be conducive to growth even with reduced capital efficiency. The results emphasise the necessity for enhancing the efficiency of financial intermediation, improving credit allocation mechanisms, optimising risk management procedures, and macroeconomic stability in emerging financial systems. This analysis contributes to the development finance literature by highlighting that the efficiency of the Harrod Domar savings-investment-growth mechanism in emerging economies is significantly dependent on the quality of financial intermediation.