Impact of Financial Stability on Economic Growth in Nigeria

2. Literature Review

In this section, I review the recent literature on the relationship between financial stability and economic growth.

Batuo, Mlambo and Asongu (2018) assess the linkages between financial instability, financial liberalisation, financial development and economic growth in 41 African countries from 1985 to 2010. The results suggest that financial development and financial liberalisation have positive effects on financial instability. They also find that economic growth reduces financial instability.

Jayakumar, Pradhan, Dash, Maradana and Gaurav (2018) study the interaction between banking competition, banking stability, and economic growth in a panel of 32 European countries from 1996 to 2014. They find that both banking competition and banking stability are significant long-term drivers of economic growth in European countries. Carlson, Correia and Luck (2019) find that banks operating in markets with lower entry barriers extend more credit and leads to a credit boom. The resulting credit boom led to expansion in real economic activity. Overall, they show that banking competition can cause both economic growth and financial instability.