Interaction Between Real And Financial Sectors In Nigeria: A Causality Test

Abstract

This study investigates the interrelationship between industrial productivity and money supply as proxies for the real and financial sectors by testing for causality under a Vector Auto-Regression (VAR) structure. In the study, it was revealed that Nigeria over the 35-year period between 1970 and 2005 like many other LDC's has a unidirectional causality running from the financial sector to the real sector growth. This indicates that the country still operates in the short-run and to take advantage of long-run changes, such variables as technology and factor productivity should to be taken into cognizance.