Financial Technology and Bank Funding Asymmetric Impact on Nigeria Economic Growth

Abstract

This study investigates the asymmetric impact of financial technology (FinTech) and total bank funding on economic growth in Nigeria using quarterly data spanning from 2000Q1 to 2023Q2. Amidst rapid technological advancement and financial innovation, understanding how FinTech and bank funding influence economic performance has become increasingly crucial, especially in developing economies. This research employs both the Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL (NARDL) models to assess both the symmetric and asymmetric short- and long-run effects of FinTech and bank funding on Nigeria’s GDP. Stationarity tests and bounds cointegration procedures are used to verify long-run relationships, followed by other diagnostic and stability tests. The NARDL model is employed to capture potential asymmetries on economic growth. The study found a long-run relationship between financial technology (FinTech), total bank funding, and economic growth in Nigeria. Results revealed asymmetric effects of positive changes in FinTech indicators significantly promoting economic growth in both the short and long run. Negative changes in FinTech have weaker effects, indicating that FinTech development contributes more when expanding than when contracting. For bank funding, it was noticed that increase in credit to the private sector and aggregate deposits positively influence growth. Decreases in funding have a stronger negative effect than the positive impact of increases, highlighting vulnerability to credit contraction. Diagnostic tests confirmed that the model is well-specified, stable, and free from serial correlation and heteroskedasticity. This suggests that policy efforts should focus on sustaining and expanding FinTech innovations and maintaining stable credit supply to enhance long-term economic growth in Nigeria.