Financial Development, Manufacturing Sector and Sustainability: Evidence from Nigeria

Dependence on the oil sector by the Nigerian government has generated a question about economic sustainability. Even though the country experienced substantial growth in the economy before the economic recession in mid of 2016, the growth had not improved unemployment and poverty rate. Therefore, the study investigates the impact of financial development indicators on the manufacturing sector in Nigeria with the aim to promote sustainable growth and development using the Vector Error Correction Model. The findings from the study show no bi-directional causal effects between financial indicators and output in the manufacturing sector. However, the study showed the presence of joint long-run and short-run causality when output in the manufacturing sector is used as a dependent variable. Likewise, the variance decomposition showed that the forecast error shocks of the financial development indicators affect output in the manufacturing sector at different horizons The implication is that long-run policies can be considered to improve the manufacturing output in Nigeria via the financial sector to promote sustainable growth. There is a need to develop a framework for policy mix and evaluate conflicting policies to ensure effectiveness in policy implementation among others.