THE ROLE OF MONEY SUPPLY INLEVERAGINGFINANCIAL DEEPENING IN NIGERIA

This study investigates the role of money supply in leveraging financial deepeningtoenhance economic growth in Nigeria. Using the Engle-Granger two-step cointegrationmethod, both long-run and short-run relationships between financial deepening indicators, money supply, and economic growth were analyzed. The study aims to determinewhether financial deepening, when complemented by an adequate money supply, significantly contributes to economic expansion. The findings reveal that financial deepening (measured as CPS/GDP) alone does not significantly impact economic growth in Nigeria, suggesting that credit to the private sector has not been effectively translated into productive investments. Similarly, money supply (M2) does not independently drive economic growth, indicating that liquidity expansion without efficient financial intermediation may not yield substantial economic benefits. The interaction between financial deepening and money supply was also found to be statistically insignificant, implying that Nigeria’s financial system has not fully integrated these financial indicators to stimulate long-term economic growth. In the short run, neither financial deepening normoney supply independently contributes to economic growth. However, the error correction term (ECT) is negative and highly significant, confirming the presence of astable long-run relationship and a relatively fast speed of adjustment toward equilibrium. This suggests that while financial deepening and money supply may not immediately impact growth, their effects become more pronounced over time as structural adjustment stake place. The study concludes that financial deepening and money supply alone are insufficient to drive economic growth in Nigeria. Instead, stronger financial sectorre forms, improved credit allocation mechanisms, enhanced financial intermediation, and macroeconomic stability are needed to ensure that financial deepening translates into sustainable economic growth. The study recommends that policymakers strengthen financial regulations, promote financial inclusion, align monetary policies with real-sector growth, and ensure that credit expansion effectively supports productive activities. These measures will enhance the contribution of financial deepening and money supply to Nigeria’s long-term economic development. This research provides valuable insights for policymakers, financial institutions, and economic stakeholders, emphasizing the need for a more integrated and strategic approach to financial sector development to drive sustainable economic growth in Nigeria.