Effect Of Shadow Banking Activities On The Nigerian Economy

Abstract

The study assessed the effect of shadow banking on the Nigerian economy over a thirty-two-year study period from 1981 to 2022. The study hypothesized that shadow banking activities significantly affect the economy. Data was sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin spanning the study period. Multiple regression methodology was used as an estimation technique. Based on the long-run results, the study provided strong evidence that the Nigerian economy substantially relies on shadow banking services. This supports the argument that shadow banking reduces dependency on traditional banks as a source of credit, benefiting the economy by providing an additional lending source and diversification in the financial system. A major policy implication of the outcome of the study is that monetary authorities should encourage shadow banking as it provides an alternative source of financial intermediation in the country. Finally, knowing the potential buildup of systematic risk inherent in shadow banking services, effective regulation should be used to ensure its effective and efficient use in the economy to foster growth and development.