IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 11, Issue 1 Ser. I (Jan – Feb 2020), PP 58-67 www.iosrjournals.org DOI: 10.9790/5933-1101015867 www.iosrjournals.org 58 | Page The Influence of Financial Sector Development and Financial Deepening on Economic Growth: Empirical evidence from Nigeria Sylvester Ohiomu, PhD 1 , Blessing Ose Oligbi, PhD 2 1. Department of Economics and Development Studies Igbinedion University, Okada, Edo State, Nigeria 2. Department of Economics and Development Studies Igbinedion University, Okada, Edo State, Nigeria Corresponding Author: Dr. Sylvester Ohiomu Abstract: The study examined the influence of financial sector development, financial deepening on economic growth: Empirical evidence from Nigeria (1981-2018). The study used ARDL model for the analysis for robust policy recommendations. The results showed that the financial sector development indicators have long run relationship with economic growth. Capital market indicator has direct relationship with economic growth rate. The ratio of total savings to gross domestic product and insurance indicator exhibit similar characteristics. This study recommends that the Government should re-engineer the insurance sub-sector and reinvigorate the money and capital markets for optimal development to accelerate financial development and economic growth. Keywords: ARDL, Development, Financial Deepening, Growth rate, Market capitalization JEL Classification: C22, C32, C51, E27, H63, H81 -------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 08-01-2020 Date of Acceptance: 23-01-2020 --------------------------------------------------------------------------------------------------------------------------------------- I. Introduction Financial sector development and financial deepening are absolutely necessary for improvements in the functioning of the financial system. They enhance increased access to financial intermediation, greater diversification opportunities, improved information quality, liquidity management and better incentives for prudent lending and monitoring (Yakubu & Affoi, 2014; Akinlo & Egbetunde, 2010; Okodu and Ewetan, 2013, Ewetan & Ike, 2015; Oladipo, 2013). The essence of financial sector is to mop up funds and channel same in the form of credits, loans or invested capital to business sectors that most need these funds for investments. With the recent global financial crisis, most countries appear to have recognized the role of financial sector development in sustaining economic growth. Most affected economies had a fall in stocks and commodities prices with consequent decline in the total market capitalization. The global financial crisis which led to economic meltdown of most countries attracted several bail out of the financial sector by the governments of the affected countries with the intention that when the financial sector is resuscitated it will translate into reviving the economy and stimulate growth. Financial development has a significant contribution to growth, is key to poverty alleviation and is associated with immerse improvements in income distribution (World Bank, 2001). The development (liberalization) of the financial sector in Nigeria was a fundamental part of the Structural Adjustment Programme (SAP), a programme which was introduced by the federal government in July 1986 (Soludo, 2004). Ewetan and Ike (2015) asserted that financial sector development is an important activity in the economy because it allows effective funds to be channeled from people who might otherwise not put them to productive use to people who will ultimately put the funds to productive uses. In line with the assumption that financial sector plays an important role in financing the real sector. Savings mobilization at the gross- roots level has been discouraged by the unrealistic requirements by many banks for accounting opening, creating huge challenge to credit for the real sector of the economy. Previous studies on financial sector development and economic growth such as, Akpansung & Babalola (2009), Adelakun ( 2010), (George Adu, Marbuah &Mensah 2013), Nwosu and Metu (2015) and Oluitan (2012) used multiple money market indicators measures at the expense of capital market variable to measure the impact of financial sector development on economic growth in Nigeria, while this study would combine money market and capital market indicators, savings and insurance indicator as well as financial deepening indicator to examine the linkages between financial sector development, financial deepening and economic growth in Nigeria. The main objective of this study is to examine the influence of financial sector development, financial deepening and economic growth in Nigeria. The null hypothesis generated for testing