Financial System Stability, Financial System Vulnerability and Private Investment in Nigeria

Atseye, Fidelis Anake , Takon, Samuel Manyo 2 , Akeh, Monica Ukongim 3
Department of Banking and Finance
Faculty of Management Sciences
University of Calabar, Nigeria
Corresponding Author: anakefidel@yahoo.co.uk and anakefidel@unical.edu.ng

The paper analysed the effect of financial system stability, financial system vulnerability on private
investment in Nigeria using time series data extracted from the Central Bank of Nigeria statistical
bulletin and the World Development Indicator for the period spanning 2008-2019. Data were
analsyed using the Ordinary Least Square (OLS) multiple regression technique supplemented with
pre-estimation test statistics such as the Augmented Dickey-Fuller(ADF) to check the presence of
unit root, hence non-stationarity; Phillips-Perron (PP) to identify unspecified autocorrelation and
heteroscedasticity in the disturbance process of the test model; Error Correction Model(ECM)
and Johansen Co-integration to establish equilibrium as well as short and long run relationships
among variables respectively. The ADF and PP tests showed that all the data except private
investment (PI) were stationary at first difference. The Johansen Co-integration tests for both
models indicating the existence a long run relationship between financial system stability and
private investment in Nigeria, and financial system vulnerability and private investment in Nigeria.
The ECM results indicated a deviation from the variables in the long run equilibrium, while private
investment provided adjustment to restore the long run relationship by correcting the
disequilibrium at 71.2 and 32.0 percent for Model 1 and 2 respectively. Generally, paper provided
evidence of a long run relationship between financial system stability, financial system
vulnerability and private investment in Nigeria. Consequently, the paper recommended a robust
monetary and regulatory framework that guarantees capital adequacy for deposit money banks;
prevents financial system vulnerability and promotes private investment in Nigeria.

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