Monetary Policy, Corruption and Financial Development in Nigeria
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Date
2025-12
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Lead City University, Ibadan
Abstract
This study examines the complex relationships between monetary policy, corruption, and financial development in Nigeria, with a specific focus on four key dimensions: financial access, depth, efficiency, and stability. Despite various reform efforts, Nigeria's financial development remains hindered by persistent macroeconomic instability and widespread institutional corruption, which distort the transmission mechanisms of monetary policy and impede sustainable economic growth. The study is grounded in the Monetary Transmission Mechanism Theory and complemented by the New Keynesian Theory, Institutional Theory, and the Endogenous Growth Theory. This study employed the ex post facto research design. It utilised secondary time-series data spanning from 2013 to 2023, sourced from the Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS), the World Bank's Global Financial Development Database, and Transparency International's Corruption Perceptions Index. Analytical techniques include descriptive statistics, Ordinary Least Squares (OLS) regression, and Granger causality tests, complemented by diagnostic checks for heteroscedasticity, autocorrelation, and normality, to analyse relationships between variables using E- VIEW software. The results from the findings show that monetary policy has a significant influence on financial access, with the model explaining substantial variation (R² = 0.9841, Adj R² = 0.9618, F = 44.134, p < 0.05). Similarly, monetary policy plays a key role in financial depth (R = 0.960, R² = 0.960, Adj R² = 0.940, F = 47.624, p < 0.05) and financial efficiency (R = 0.8293, R² = 0.8293, Adj R² = 0.6586, F = 4.859, p < 0.05). Corruption significantly affects financial access (R² = 0.939, Adj R² = 0.927, F = 77.493, p < 0.05) and efficiency (R² = 0.860, Adj R² = 0.814, F = 18.469, p < 0.05), but its impact on financial depth is negligible (R² = 0.209, Adj R² = 0.051, F = 1.322, p > 0.05). The exchange rate, as a control variable, also significantly influences financial development (R² = 0.872, Adj R² = 0.668, F = 5.275, p < 0.05). Granger causality tests reveal that financial development causes corruption (F = 13.777, p = 0.0037) and money supply affects inflation (F = 4.133, p = 0.065) and corruption (F = 7.824, p = 0.016). These results emphasise the dynamic interplay between monetary policy, corruption, and exchange rate stability in shaping financial development outcomes. The study's findings conclude that monetary policy, corruption, and exchange rate dynamics have a significant impact on financial development in Nigeria. Monetary policy affects access, depth, and efficiency, while exchange rate fluctuations influence financial stability. Corruption hampers access and efficiency but has minimal effect on depth. The study emphasises the importance of robust governance and targeted policies in promoting sustainable financial development. Based on the findings, it is recommended that Nigerian policymakers should tailor monetary policies to improve
financial access, depth, and stability while prioritising anti-corruption efforts, especially within financial institutions. The Central Bank should monitor inflation and exchange rates to ensure stability. Exchange rate management should be incorporated into monetary policy to foster growth alongside ongoing institutional reforms to reduce corruption and support financial development.
Keywords: Monetary Policy, Corruption, Financial Development, Financial Access, Depth
Word Count: 495
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Keywords
Monetary Policy, Corruption, Financial Development, Financial Access, Depth
Citation
kate Turabian