IER-08-02-01-pp007--2070-Afolabi 2022, Vol. 8, No. 2 10.15678/IER.2022.0802.01 Financial deepening and human development in Nigeria: A non-linear approach Mutiu Adeniyi Afolabi A B S T R A C T Objective: The study investigated the effect of credit supply on GDP on Human Development and as well exam- ined the impact of Money supply on GDP on human development. It equally assessed the link between bank penetration and human development and the link between financial intermediation and human development. Research Design & Methods: This study used ex-post facto research design and a Non-Linear Autoregressive Distributed Lag (Asymmetry ARDL) to estimate the effect of financial deepening on human development. Eview 11 was used for the analysis. Findings: This research work discovered that the positive contribution of credit supply and money supply to human development in Nigeria is weak and the relationship between financial deepening and development is not always linear. The study revealed that the effect of branch expansion in Nigeria is negative because of limited bank products or services. Implications & Recommendations: The implication of this study is that expansionary monetary policies have the most significant positive impact on human development in Nigeria. The expansionary policy can as well worsen human development through inflationary pressure while a contractionary policy is an anti- human development approach and its effects on human development are negative. The study therefore recom- mends that: The central bank of Nigeria should place more emphasis on expansionary monetary tools to drive development and be cautious of inflation. CBN and banks should monitor their credit to avoid loan diversion by the beneficiaries and to beat extreme poverty. Contribution & Value Added: The study used asymmetry ARDL model as an improvement over the conven- tional regressions that the previous authors have been using to examine the link between financial deep- ening and human development. Article type: research article Keywords: Financial Deepening; Money Supply; Credit Supply; Human Development; Asymmetric ARDL JEL codes: E50, E52, I30 Received: 21 December 2021 Revised: 25 May 2022 Accepted: 28 May 2022 Suggested citation: Afolabi, M.A. (2022). Financial Development and Human Development in Nigeria: A non-linear approach. In- ternational Entrepreneurship Review, 8(2), 7-24. https://doi.org/10.15678/IER.2022.0802.01 INTRODUCTION The rising case of poor human development is a major source of concern for policymakers in many economies. This concern has recently been heightened by worrying state of unemployment and con- tinuous government inability to better the life of the masses due to scarce financial resources. Many policymakers believe that increasing financial access to the poor masses is a desirable goal because it would enhance human development. It is worthy of note that, human development, poverty allevia- tion, reduction in inequality and economic growth may not be possible in developing countries without financial system access, financial system depth, financial system efficiency (IMF, 2018). In recent time, financial deepening and human development has been subject of hot debate by policy makers in both developed and developing economies of the World. Part of the efforts made by Policy makers include International Entrepreneurship Review RI E 8 | Mutiu Adeniyi Afolabi setting of Sustainable Development Goals by United Nations, enactment of Community Reinvestment Act of 1997 by United States and this Act requires banks to extend credit throughout their area of operations and discouraging them from targeting only small social and economic elites to break the cycle of poverty and other human development challenges (UNDP, 2015). Similarly, The United Kingdom Department for International Development (UKDFID) put in place the Financial Deepening Challenge Fund in year 2000 to encourage UK and local financial services providers expand the ranges of financial products available in Africa and South Asia. In 2001 Canada introduced a legislation which requires all banks to offer bank accounts without minimum opening balances. Related attempts made in developing economies include microfinance banking policy of 2005, fi- nancial sector reform of 1986, Central Bank of Nigeria Bank’s Recapitalization policy of 2004, Financial Sector Development and Reform Program of 2014 which aim at achieving Global financial access in Nigeria and South Africa (World Bank Global Financial Development Report, 2014). In spite of all the aforementioned policies, the fact still remains that programmes, policies and legislative framework initiated in Nigeria to address people’s economic, social and financial deepening challenges could be considered ineffective, weak and counterproductive (Adegboyo et al.,2021). Hence, the debates on how financial deepening influence human development still remain a tensed issue without any moderate consensus and what is evident in developing nations is that there has been growing inequality and very narrowed financial services (Asongu, 2015). The issue of whether those countries that have formulated and adopted policies and programmes that can mitigate financial deepening challenges have witnessed human development still remains question to be empirically analyzed in Nigerian context. The earliest studies by Schumpeter (1911), Gurley and Shaw (1955) which investigate the relationship between financial development and economic growth failed give empirical backing to their idea and did not believe that finance is one of the determinants of growth in their array of write ups on economics. Another set of researchers (Enrica et al., 1994; Gusav et al., 1997) study the link between economic growth and human development and established a significant relationship in both direction. Latest researches by Asteriou and Spano (2019), Younsi and Bechini (2018), Onaolapo (2015), Babajide et al. (2015) centre on Financial development, economic growth and inequality, financial inclusion and economic growth, with findings that financial inclusion, financial development has a positive effect on economic growth and inequality. From all indications, the link between financial development and economic growth, financial development and inequality, financial inclusion and economic growth have been receiving much empirical attention locally and internationally but little is known about the effects of financial deep- ening on human development in Nigeria. Additionally, this study is also motivated by the idea that an appropriate modelling or methods of analysis is needed to diagnose the real effect of financial deepening on human development. Thus, this work employed Asymmetric Autoregressive Distributed Lag as an improvement on conventional re- gressions to analysis the effect of financial deepening on human development. The objectives of the study are: 1. To investigate the effect of credit supply to GDP on Human Development 2. To examine the impact of Money supply to GDP on human development 3. To assess the link between bank penetration and human development 4. To evaluate the relationship between financial intermediation and human development. Based on the objectives of this study, the following hypotheses were formulated in their null form: H1: Credit to private sector does not have significant effect on human development in Nigeria. H2: Money Supply does not have significant impact on human development in Nigeria. H3: Banks branch penetration does not have significant link human development in Nigeria. H4: There is no significant relationship between commercial bank intermediation and human development in Nigeria. Financial deepening and human development in Nigeria: A non-linear approach | 9 Financial deepening may do more for the poor than simply help them achieve greater economic stability and prosperity. It could also provide the poor with greater cognitive resources, which would allow them to focus on basic needs and other necessity of life like education of their children, raise the volume of savings and investment (Goldsmith, 1969; McKinnon, 1973; Shaw, 1973). LITERATURE REVIEW Conceptually, financial deepening could be described as an expansion in the scale of financial transac- tions in comparison with a national economy. Financial deepening drives economic growth, human development and alleviates poverty (Gelb, 1989; King & Levine, 1993; Levine, 2005; Levine et al., 2000; Roubini & Sala-i-Martin, 1991; Stiglitz & Weiss, 1981; World Bank, 2018;). For this study, financial deep- ening simply means widening the supply of financial bonds, cash, stock, deposit liabilities or valuables in the economy. Notably, Gurley and Shaw (1955), McKinnon (1973) among many authors made two crucial observation on financial deepening. Firstly, the development of real money balance is a wel- come development for an economy and secondly the development of an economy relies heavily on financial development and financial intermediation. However, in order to give empirical evidences to these propositions (Beck & Levine, 2002; Federici & Caprioli, 2009; Levine, 2005; Liu & Hsu, 2006; Og- wumike & Ifagandeh, 2008; Qi & Teng, 2006; Shaw, 1973; Tsoukas, 2011) carried out a number of cross-countries studies to accept or refute the propositions. Financial Intermediation It is the channeling of funds from the surplus unit to the deficit unit of the economy. The process of linking the borrowers and users together is likely to result in the deepening of the financial system (Goldsmith, 1969; Greenwood & Jovanovic, 1990; Harold, 2019). Linking users and the providers of funds will also increase investment. Channeling of fund from the surplus units to the deficit units of the economy promotes growth by way of higher cost of fund to be received on money, and the im- proved economic performance in turn makes it possible to execute a costly financial mix (Greenwood & Jovanovic, 1990). In the view of Montiel (1995), Beck and Levine (2004), growth and financial de- velopment are interconnected because to a limited extent, per capita income can determine the level of financial development and on the other hand, financial development can influence economic growth on temporary and permanent basis. The dimensions of financial deepening which are the channels through which the growth and development of economy are influenced include financial intermediation, bank penetration, Credit to the private sector to GDP, money supply to GDP, market capitalization to GDP, Treasury Bill Etcetera (IMF, 2018). Human Development Human development has to do with giving people opportunities and access to basic necessity of life to enhance their living standard, respecting human right and all other forms of self-esteems, access to education, health, political and economic independence (United Nations, 2015; UNDP, 2019). Human development has remained a topical issue in the global discuss because of the perceived and the as- sumed links between economic growth and development in the second half of the 20th Century (United Nations, 2015). In the beginning of 1960s there were agitations and calls to place less relevance to GDP because economic growth (GDP) had assumed both the leading objective, and measurement of economic performance in many countries in spite of the fact that GDP was not purposely created to be the measure of welfare. From 1970s to 80s development experts strongly argued using alternative focuses to go beyond GDP, by putting greater emphasis on employment, income redistribution, and whether people had met their basic necessity of life. The argument paved way for human development approach, which is about enhancing human life, instead of simply looking at the booming outlook of the economy in which human beings live. The HDI is captured with three key variables: Long life, meas- ured as life expectancy at birth, educational qualification and health. 10 | Mutiu Adeniyi Afolabi King and Levine Theory of Financial Development These theorists re-investigate and re-confirm Schumpeter’s study in 1993 and posit that indicators of financial development which are; financial depth or money supply to GDP, the contribution of banks in relation to the central bank, the proportion of bank loan given to individuals and private firms, and credit supply to private sector in relation to GDP are evidently and robustly related with growth, phys- ical capital allocation efficiency and that financial development indicators are significantly associated with the latter coefficient of growth index. King and Levine are of the view that financial development influences the economic development. This theory is relevant to this study because a major indirect channel by which financial development affect human development is through economic growth (Galor & Tsiddon, 1996; Perroti, 1993). Endogenous Growth Model The endogenous growth model was pioneered by Lucas and Romer to shed light on the relationship between finance and economic growth. The theory of endogenous growth contends that economic growth is derived from within the economic system as a direct result of internal mechanism (Aghion et al., 1998; Romer, 1994; Solow, 2000). In particular, the theory contends that improvement in human capital will improve the economic performance due to innovation or new forms of technology as well as efficient and effective ways of production. Empirical Review In the work of Ranis (2004), human development was used interchangeably with human capital to indicate a two way relationship between economic growth and human development and made a prominent suggestion that countries may enter either into a worsening situation of high growth and large gains in human development, or a difficult situation of low growth and low rates of human de- velopment. According to Ranis (2004), the levels of economic growth and human development are jointly dependent, either leading towards a higher spiral of development, or a cycle of poverty. How- ever, the continuity and persistence of these cycles relies on the extent of the connectivity between economic performance and human development. Rani emphatically made a resounding assertions concerning the situation of developing countries; he pointed out that nations could find themselves in a cockeyed state, at least temporarily, with better growth and relatively poor human development, or vice versa. He further pointed out that the basis for poverty are; endemic corruption in government, poor social expenditures, and inequality in income distribution. On the relationship that exist between financial deepening and human development, Jorgenson and Fraumeni (1994) reveal that human capital investment in the form of education and health spending by banks and government reduces mortality and increases life span thereby enhancing productivity. Simi- larly, studies on hospital financing highlight the importance of financial institutions in health care financ- ing by exploring the use of derivatives and bonds (Stewart & Owhoso, 2004; Stewart & Trussel, 2006). Studies by Becker (1962), Nelson and Phelps (1966), Romer (1994), Lucas (1990), Mushkin ( 1962), Benhabib and Spiegel (1994) assert that investment in human beings through financing of education, on the job trainings and health care inputs has future returns not only for the individual but for entire economy. Therefore, investment in health by households and expansion of the health sector by government and the private sector affect health outcomes and health-related factors like life expectancy, mortality, labour market participation and productivity, human capital accumula- tion, fertility decisions and demographic structure (Agenor, 2015). Durusu-Ciftci et al. (2017) examine the long run effect of financial development on economic growth using a dataset of forty countries from 1989-2011. The analysis was carried out using Au- gumented-Mean Group and Common-Correlated Effect. It was reported that financial development has long run effect on per capital income and that credit market contributed significantly to growth. Akther et al. (2020) research on the relationship among finance, human development and growth in 118 countries including 54 IOC countries from 1996 to 2014 using GMM approach. The result of their findings revealed that there exist a positive link between human development variables (average year of Financial deepening and human development in Nigeria: A non-linear approach | 11 schooling, primary, secondary and tertiary school participation and health spending to GDP) and eco- nomic performance. While financial development (domestic credit to private sector, M3, banking deposit and financial system deposits to GDP) and economic growth are negatively correlated, bank cost to in- come that measures financial system efficiency has negative correlation with the economic growth. Younsi and Bechtini (2020) evaluate the relationship among growth, financial development and inequality in BRICS countries using panel data analysis and cover the period between 1995 and 2015. The data for financial development were constructed for BRICS countries using Principal Com- ponent Analysis. The results of the study indicated that there is a long-run relationship between growth, financial development and inequality. It was reported that GDP per capital has significant positive impact on income inequality while the squared term of GDP per capital has significant neg- ative effect on income inequality. The result of the study showed existence of unidirectional rela- tionship between financial development indicators and income inequality while there is bidirec- tional causal link between inflation and income inequality. Agheli and Hadian (2017) investigate the nexus between finance and growth for fifteen developing and Middle Eastern countries using Kónya (2006) bootstrapped panel methodology. The study covers 1980 to 2013. The findings from the study demonstrates that a low financial development account for non- existence of causal relationship between financial development and economic growth. However, there is existence of supply leading and demand following evidence for some others. Kilic and Ozcan (2018) investigate the relationship between financial development and human capital development in emerging economies between 1990 and 2015 using panel dataset. The re- searchers constructed proxies for human capital and financial development to mirror the dimensions of both variables. The result of the study showed that financial development has a positive signifi- cant impact on human capital in emerging economies. Asteriou and Spanos (2019) investigate the nexus between financial development and economic growth having factored in the shock from 2008/2009 financial crisis and introduced Structural break to capture pre-financial- crisis and post-financial crisis effect of financial development on growth. The study used panel dataset of twenty six European Union countries and covers 1990-2016. The result of the study revealed that financial development enhanced growth before and after the finan- cial crisis and retard economic activity after the crisis. Osuka et al. (2018) investigate the nexus between human development and financial deepening using time series data from 1991 to 2015 and ARDL approach. The findings of the study revealed that there is a unidirectional causal relationship between financial deepening and Human Development. The study also asserts that financial deepening is a sin-qua-non for improving Human Capital in Nigeria. Maciejewski and Głodowska (2020) confirm that the countries that experienced the highest level of economic development has no justification to believe that higher level of development in the finan- cial system retards their economic performance. The result further assert that the development of the financial sector, which is harmful to economic performance, occurs in nations that are in transitional stage and those countries with an average economic development level. Cheshti (2017) investigate the relationship between human development index developed by UNDP and financial development indicator developed by IMF. The result of the investigation revealed that financial development has significant and enhancing effect on human development. RESEARCH METHODOLOGY The study use ex-post facto research design. Model Specification The study adapts Levine and King’s model with little modifications to achieve the study objectives. Levine and King’s (2002) regression is specified as: ��� = ��+ ����� +� �� +��� (1) 12 | Mutiu Adeniyi Afolabi Where ��� is the growth or development, ��, ��, � are coefficients, ��� is an indicator of a country i Financial Sector Development at time t, �� is the value of control variable for a country i at time t, ��� is the error term. However, the dependent variable (growth) in the Levine and King’s regression in the equation (i) above was substituted with Human development in the equation (ii) below; �����= ��+ ����� +� �� +��� (2) because of the interconnectivity that exists between growth and development. The independent variable (indicators of financial sector development) in the equation (i) above was also substituted with financial deepening variables in the equation (ii) below; �����= ��+ ������+� �� +��� (3) because financial deepening is synonymous with financial development and is a more acceptable measure of increase in the scale of financial transactions as indicated in the IMF report of 2018. Time series regression /equation as against the panel regression above were formulated for this study. According to (IMF, 2018; King and Levine, 2002; UNDP, 2015) the modified or expanded model for this study is specified as follows: ℎ��� = � � �2� ���� , ���� ���� , ���� , ��� � (4) where: � !"# - is the ratio of broad money supply to GDP (financial deepening); $#% !"# - is the ratio of credit to private sector to GDP (financial deepening); ���&��'� - is the total bank deposit (bank intermediation); ��� - is bank penetration (financial access). Table 1. Sources and Measurement of Variable Variables Definition/Meaning Sources HDI Human development index United Nation Development Programme Report (1990-2019) �2� ���� Ratio of money supply to GDP Central Bank of Nigeria Statistical Bulletin (1990-2019) ���� ���� Ratio credit to private sector to GDP Central Bank of Nigeria Statistical Bulletin (1990-2019) Bank deposits Total deposit in the Nigerian banks Central Bank of Nigeria Statistical Bulletin (1990-2019) Bank penetration Total number of banks branches in Nigeria Central Bank of Nigeria Statistical Bulletin (1990-2019) Source: UNDP (2020); CBN (2020). Pre-Estimation Test First and foremost, a pre estimation analysis such as descriptive statistics and unit root test were con- ducted to know the data characteristic and order of integration. The unit root test considered are con- ventional unit root; namely ADF, Kwiatkwoski-Phillips-Schmidt-Shin (KPSS), Zivot Andrew unit root and confirmatory analysis by comparing ADF with KPSS and Zivot Andrew. Zivot Andrew was specifically included to handle single break and guide the researcher on the appropriate estimation model. Model Estimation Asymmetric Autoregressive Distributed Lag (non-linear econometric approach) which is an extension of Auto Regressive Distributed Lag (ARDL) was used to analyse the relationship or the effect of fi- nancial deepening on human development in Nigeria because of the non-normality and asymmetric problem. Unlike conventional time series regression which assumes linearity, constant parameter Financial deepening and human development in Nigeria: A non-linear approach | 13 and proportional changes between the dependent and independent variables, the Asymmetric ARDL assumes asymmetric relationship and considers the fact that nonlinearity is very common within the social sciences and that asymmetry is fundamental to human condition (Pesaran & Shin, 2001). It is the view of the researcher that estimating a relationship which perhaps contains asymmetry with symmetric techniques would appear unfair and lead to serious inappropriate policy conclusion and recommendations (Pessaran & Shin, 2001). The flexibility and suitability of Asymmetric ARDL for 1(0) and 1(1) order of integration, and its capability to test for hidden long run relationship and perform better when the sample is small is appealing to the researcher (Granger & Yoon, 2002). According to Pessaran and Shin (2001) ARDL model is specified as: ∆���� = ) + ∑ ���,�-� ∆����.� + ∑ � �,�-� ∆ / 012��.� + ∑ �3� , �-� ∆ 425012 �.� + ∑ �6� ∆�786�.� + , �-� ∑ �9� ∆�87:�.�,�-� + ;�����.� + �� / 012�.� + � 425 012�.� + �6�78�.� + �:�87�.� + ��� (5) Where ∆ represent first difference, ��� is the dependent variable, t is period, α denote intercept, � !"# , $#% !"# , ���� , ��� are expressed in form of k by 1 vector of regressors, ;�, ��, � ,�3,�6, �: repre- sent long run coefficients while ��, � , �3 represent short run coefficients, ' − � represent optimal lags for the dependent and independent variable, ��� represents error term. However, to examine if the assumption that nonlinearity is very common within the social sciences and that asymmetry is fundamental to human condition are valid and detect asymmetric effects of financial deepening on human development, the researcher decompose financial deepening variables into its positive and negative partial sums: / 012� = = ∑ ∆ / 012> = = �>-� ∑ max (∆ / 012>,� =) �>-� (6) / 012� . = ∑ ∆ / 012> . = �>-� ∑ min (∆ / 012>,� . �>-� ) (7) 425 012� = = ∑ ∆ 425012> = = �>-� ∑ max �∆ 425012>,� =� �>-� (8) 425 012� . = ∑ ∆ 425012> . = �>-� ∑ min �∆ 425012>,� .��>-� (9) �78� = = ∑ ∆�78> = = �>-� ∑ maxF∆�78>,�=G �>-� (10) �78� . = ∑ ∆�78> . = �>-� ∑ minF∆�78>,� .G �>-� (11) 87H7� = = ∑ ∆87H7> = = �>-� ∑ maxF∆87H7>,� = G�>-� (12) 87H7� . = ∑ ∆87H7> . = �>-� ∑ minF∆87H7>,�. G�>-� (13) RESULTS AND DISCUSSION Descriptive Statistics From the table 1, the null hypothesis of normal distribution was rejected for deposits and the pro- portion of Credit Supply to GDP. This technically revealed that distribution of these two variables were not independent and identical. The results provided by Skewness, Kurtosis and Jarque Bera P value as regard deposits and credits supply showed the presence of potential asymmetry in the distribution of time series data. Therefore, the asymmetric autoregressive distributive lag modeling (NARDL) might be needed to address the problem of asymmetry (Shin et al., 2014), if further pre- liminary test also suggest non linearity. From The kurtosis statistic, bank penetration, CPS/GDP, M2/GDP were platykurtic in nature while HDI and Deposits on the other hand are leptokurtic. From the results below using the P-values associ- ated with the Jarque-Bera statistics, the HDI, M2/GDP and bank penetration were normally distributed while CPS/GDP was marginally abnormal and Deposits was not normal. Overall, both deposits and CPS/GDP exhibited non normality or asymmetric and the issue of asymmetry might stem from non- normality and asymmetry of both the bank deposits and CPS/GDP. 14 | Mutiu Adeniyi Afolabi Table 2. Descriptive statistics Variables Mean Median Max. Min. Std. Dev. Skewness Kurtosis Jarque-Bera Prob. Prob. HDI 0.46 0.48 0.58 0.32 0.074 -0.52 2.17 2.30 0.32 DEPOSITS 2714.233 451.9631 12146.91 11.49 3970.380 1.324259 3.338325 9.208435 0.010010 CPS/GDP 11.2599 8.2436 20.773 6.2173 5.3757 0.8703 1.9585 5.3145 0.0701 BPENE 3327.129 2407.000 5809 1367 1527.368 0.540499 1.684861 3.743440 0.153859 M2/GDP 14.48608 13.0639 21.2905 9.1517 3.9306 0.5732 1.8072 3.5350 0.1708 Source: own computation using Eview, 2021. Preliminary or Pre estimation Analysis While it is essential to conduct a formal unit root test, it is of upmost importance to first plot the time series under investigation in order to get a clearer picture of the stationarity and integrating properties of the variables. Based on the above view, HDI, M2/GDP, CPS/GDP, Deposits and Bank Penetration were graphically examined and presented in figure 1 to 5 (Appendix). It is evident from the graph that the variables were trended in nature which was a clear evidence of unequal means and variance over- time (which means the variables could only be stationary after difference). The researcher had on this basis assumed that the variables under study were not stationary over the study period. Unit Root Test The researcher employed Augumented Dickey Fuller, Kwiatkowski-Phillips-Schmidt-Shin test statistic and Zivot Andrews unit root tests to examine numerically and statistically the stationarity nature of the variables since using these three unit root test would enhance the credibility of the unit root test results (Enders, 1995). ADF and KPSS unit root test were initially conducted to determine the proper- ties of the series. The researcher discovered that there existed a structural break in the series while carrying out preliminary test. The descriptive statistics such as skewness, Kortois and JB statistics pointed out the issue of non-normality or asymmetries which made the researcher to suspect that ADF and KPSS unit roots might have given ambiguous and false result because both tests ignored the im- portance of structural break in a series. Hence, Zivot Andrew unit root was employed to confirm the existence of a structural break and the timing of the break because ZA is capable of providing superior empirical results in the presence of unknown single structural break in the series. Table 3. Augumented Dickey Fuller Variable Constant with trend @level @difference Order of integration HD _ -4.296729 (-7.169834)*** 1(1) CPS/GDP _ -4.323979 (-4.760542) *** 1(1) M2/GDP _ -4.309824 (-4.880502) *** 1(1) Deposits _ -4.309824 (-6.910605) *** 1(1) Bank penetration _ -3.679322 (-3.688802)*** 1(1) * (**) (***) denotes significance at 10%, 5% and 1%. Source: own computation using Eview, 2021. Financial deepening and human development in Nigeria: A non-linear approach | 15 Table 4. Kwaiatkowski Philips – Schmidt-Shin (KPSS) Unit Root Variables Constant with trend level Order of integration HD 0.216000 (0.090042) 1(1) CPS/GDP 0.216000 (0.164708) 1(1) LM2/GDP 0.216000 (0.095679) 1(1) Deposits 0.216000 (0.188756) 1(0) Bank penetration 0.216000 0.081170 1(1) Source: own computation using Eview, 2021. Table 5. ZIVOT Andrew Unit Root Result Variable T-Stat Time break Order of Integration HD -5.3475 (-10.3465) *** 1993 1(0) CPS/GDP -5.3475 (-5.6307) *** 2006 1(1) LM2/GDP -5.3475 (-5.8758) *** 2006 1(1) Deposits -5.7191 (-7.9220) *** 2003 1(1) Bank penetration -5.3475 (-5.6367) *** 2003 (3rd quarter) 1(1) * (**) (***) denotes significance at 10%, 5% and 1%. Source: own computation using Eview, 2021. Table 6. Confirmatory analysis Variable ADF KPSS ZA with break Decision HD 1(1) 1(1) 1(0) (1993 + 2month) inconclusive decision due to structural break CPS/GDP 1(1) 1(1) 1(1) (2006 +5months) Conclusive decision LM2/GDP 1(1) 1(1) 1(1) (2006+6months) Conclusive decision Deposits 1(1) 1(0) 1(1) (2003+7months) Conflicting decision due to break Bank penetration 1(1) 1(1) 1(1) (2003+3months) Conclusive decision Source: own computation using Eview, 2021. NARDL Model Before conducting the NARDL test, the researcher strictly follow Pessaran and Shin rule of I(1) for the dependent variable, I(1) and I(0) or mutually cointegrated for independent variables (see table 6 for details). Although, the unit root result for HD and deposit were not conclusive, yet the NARDL result remained valid because a valid conclusion could be drawn from the Bound test for cointegration even in the presence of a conflicting unit root tests (Pesaran et al, 2001). As part of the preliminary steps, the researcher logged deposit variable which appeared to have exhibited skeweness and exponential distribution while HDI, CPS/GDP and M2/GDP were not logged because they were in percentage. From the NARDL results, 99% of the variation in human development was explained by money supply, bank credit, deposits and bank penetration. The DW value of 3.14 indicated that appropriate lags were se- lected for the model and there was no serial correlation. The F- statistics is statistically significant at 1%. Thereafter, the long run coefficient (calculated) obtained are 0.08, 0.15, 0.07, 0.23, 0.00007, 16 | Mutiu Adeniyi Afolabi 0.00009, 0.000056 and 0.000027 respectively. From the above long run coefficient, an increase in the proportion of money supply led to about 8% improvement in the human development index while a decrease (contractionary policies) in the proportion of money supply led to a fall in human develop- ment index by 15%. An increase in the proportion of credit supply to the private sector would improve human development index by 7% but a decrease (contractionary policies) in the proportion of credit to the private sector would worsen or deplete human development index by 23%. Interestingly, bank penetration and deposit had significant negative and positive impact on human development index in Nigeria. The cumulative effect of Branch expansion was negative and this result is consistent with Cristina and Paola (2017) which was an indication that branch expansion has not increased credit availability, service quality, client base, financial depth, financial efficiency and general accessibility to bank services. The cumulative effect of deposit mobilization was positive. In the short run, a negative shock to money supply sometimes worsened or improved human development index while a positive shock to money supply also reflected mixed result on human development but the cumulative effect of the shock in money supply on human development is positive and this was a con- firmation of Nonlinear relationship between money supply and human development in Nigeria. The Nonlinear effect of money supply on human development might be attributable to policy inconsistence and huge proportion of cash outside the bank system. Surprisingly, there was also asymmetry relationship between credit to private sector and human development in the short run. It was discovered that a positive shock to credit had a negative effect on human development and this might be attributable to factors such as; country inability to meet an empirically acclaimed Pro growth/development threshold of 70-100% of CPS to GDP. Likewise, a negative shock to credit sup- ply significantly worsened human development in Nigeria. Conclusively, the cumulative effect of credit supply on human development was negative for the period under study. Both negative and positive shocks to bank branch penetration affect human de- velopment negatively in the short run. There was also an asymmetry relationship between bank de- posits and human development. The mixed effect of bank deposit on human development is not sur- prising because this might be attributable to poor saving habit and low income of the Nigerians. Table 8. Nonlinear ARDL Model Variables Coefficient Std. Error T-Statistic Probability Constant -0.147523 0.001047 -140.8786 0.0045*** ��(−1) 0.142287 0.001737 81.89394 0.0078*** J2 KL M�8=(−1) 0.011388 0.0000273 417.0473 0.0015*** J2 KL M�8.(−1) 0.021024 0.0000509 412.9660 0.0015*** ;N KL M�8=(−1) -0.O10186 0.0000506 -201.3121 0.0032*** ;N KL M�8.(−1) -0.032211 0.000122 -263.6596 0.0024*** �OHP 87H7=(−1) 0.0000105 0.000000221 47.69439 0.00133*** �OHP 87H7.(−1) -0.0000128 0.000000472 -27.19923 0.0234*** �78LQ�K =(−1) -0.0000079 0.000000055 -146.0322 0.0044*** �78LQ�K .(−1) 0.0000384 0.000000185 207.1087 0.0031*** ∆J2 KL M�8.(−1) -0.005413 0.0000284 -190.5700 0.0033*** ∆�OHP 87H7=(−1) 0.0000352 0.000000129 273.8736 0.0023*** ∆;N KL M�8=(−1) -0.015196 0.0000448 -338.8482 0.0019*** ∆;N KL M�8.(−1) -0.019564 0.0000891 -219.5042 0.0029*** ∆J2 KL M�8.(−1) 0.018877 0.0000720 248.5911 0.0026*** ∆J2 KL M�8=(−2) -0.004254 0.0000428 99.37927 0.0064*** ∆�78LQ�K = -0.0000019 0.000000067 -28.75614 0.0221*** ∆J2 KL M�8= 0.014061 0.0000631 222.8851 0.0029*** ∆��(−3) -0.145470 0.000529 -257.1090 0.0023*** ∆;N KL M�8=(−3) -0.007631 0.0000198 -385.6169 0.0017*** ∆;N KL M�8.(−2) -0.006073 0.0000371 -163.7828 0.0039*** ∆�OHP 87H7.(−3) 0.0000501 0.000000429 116.7659 0.0055*** Financial deepening and human development in Nigeria: A non-linear approach | 17 Variables Coefficient Std. Error T-Statistic Probability Constant -0.147523 0.001047 -140.8786 0.0045*** ∆;N KL M�8.(−3) 0.010118 0.0000725 139.6260 0.0046*** ∆�78LQ�KQ .(−3) -0.019352 0.000310 -62.34250 0.0102*** ∆�78LQ�KQ =(−3) 0.00000137 0.0000000803 17.00361 0.0374*** ∆J2 KL M�8=(−1) 0.000303 0.0000629 4.820326 0.1302 * (**) (***) denotes significance at 10%, 5% and 1%; R2 – Adjusted 0.9999; F – Stat (51.0956)0.001105; RSS 0.00000000138; DW 3.136126 Source: own Ccomputation using Eview, 2021. From the table 8, the calculated f-stat of 51.79 was statistically significant at 1% and exceeds the upper bound Pessaran critical value of 4.01 when k is 4 at 5% p-value. This confirmed the exist- ence of hidden cointegration between Human Development and Financial Deepening for the period under study. There was a long run nonlinear relationship between financial deepening and human development in Nigeria. Table 9. Bound Test of Cointegration for NARDL Test Statistic Value Df Probability F-statistic 51.79378 (7, 1) 0.0011*** Chi-square 36.25565 7 0.0000*** * (**) (***) denotes significance at 10%, 5% and 1% Source: own computation using Eview, 2021. Test for Presence of Asymmetry The table 9 investigated the presence of asymmetry using Wald Test. The calculated f-stat of 33.26 is statistically significant at 1% and exceeds the upper bound Pessaran critical value of 4.01 when k is 4 at 5% p-value. From the result, the null hypothesis of equality is rejected as p-value is less than 0.05. The Wald test indicated that there was asymmetry in the long run impact of financial deepening on Human Development. The positive effect of the series was not the same with the negative effect of the series on Human Development. It was evident from this result that positive shock and negative shock of financial deepening had unequal and mixed effect on Human Development. The result gave a picture of the happenings in Nigeria because in spite of the positive trend for PCI between 2003 -2015 couple with the increase in M2/GDP and increase in bank deposits base, increase in credit and bank branch expansion, the living condition of Nigerians have deteriorated. Table 10. Test for asymmetry Test Statistic Value Df Probability F-statistic 33.26911 (5, 1) 0.0042 Chi-square 16.63456 5 0.0000 * (**) (***) denotes significance at 10%, 5% and 1% Source: own computation using Eview, 2021. Discussion This study found that financial deepening has short run and long run asymmetric effect on human development in Nigeria. From the long run coefficient, an increase in the proportion of money supply led to about 8% improvement in the human development index while a decrease (contractionary policies) in the proportion of money supply led to a fall in human development index by 15%. Inves- tigation also revealed that an increase in the proportion of credit supply to the private sector would improve human development index by 7% but a decrease (contractionary policies) in the proportion of credit to the private sector would worsen or deplete human development index by 23% and this result was consistent with empirical studies of Fry, 1995; World bank, 1990; World bank, 2017; Hu- ber,2018. Obviously, money supply and credit supply played significant but weak role in human de- velopment and this was contrary to the work Levine (2000) and supported the research work of 18 | Mutiu Adeniyi Afolabi Maciejewski and Głodowska (2020). Interestingly, both bank penetration and deposit mobilization has a significant effect on human development. CONCLUSIONS Previous studies (Kilic & Ozcan, 2018; Osuka et al., 2018), affirmed that financial deepening variables had significant and positive effect on human development. However, this research work discovered that the positive contribution of credit supply and money supply to the development in Nigeria is weak and the relationship between financial deepening and development is not always linear. The study revealed that the effect of branch expansion in Nigeria is negative because of limited bank products or services. It was concluded that there is mixed relationship between financial deepening variables and human development in Nigeria. Conclusively, an inverted U-shape link between financial deepening and development has been empirically confirmed by this study for Nigeria when contractionary mon- etary policy was applied. The limitation for this study is lack of long run data for human development index and lack of consensus on the appropriate measure of human development. Future studies should consider the role of inflation in financial deepening and human development because expansionary policies expose monetary authority to inflationary pressure. 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Journal of Knowledge Economy, 11(2), 721-742. https://doi.org/10.1007/s13132-018-0569-2 Financial deepening and human development in Nigeria: A non-linear approach | 21 Appendix: .30 .35 .40 .45 .50 .55 .60 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 HDI Source: own computation (2021) using Eviews 1,000 2,000 3,000 4,000 5,000 6,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 BPENE Source: own computation (2021) using Eviews 22 | Mutiu Adeniyi Afolabi 6 8 10 12 14 16 18 20 22 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 CPS/GDP Source: own computation (2021) using Eviews 8 10 12 14 16 18 20 22 24 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 M2/GDP Source: own computation (2021) using Eviews Financial deepening and human development in Nigeria: A non-linear approach | 23 0 4,000 8,000 12,000 16,000 20,000 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 SAVDEP Source: own computation (2021) using Eviews 24 | Mutiu Adeniyi Afolabi Author Mutiu Adeniyi Afolabi PhD Student in Economics at Osun State University and a permanent lecturer in the Department of Banking and Finance, Federal Polytechnic Offa, Kwara State. His area of interests are applied economics, econometrics, invest- ment analysis, Business finance, Finance in the global market and financial management. He has researched ex- tensively in development and financial economics. He is a CIBN examiner in Public Finance, International Finance and E-Payment Operations. HND (B&F), B.Sc. (Eco), MNES, M.Sc. (B&F), M.Sc. (Eco), PhD (Eco) in view, FCIB. Correspondence to: Mr. Mutiu Adeniyi Afolabi, PMB 420, Federal Polytechnic Offa, Nigeria, e-mail: adeniyi.afolabi@fpo.edu.ng ORCID http://orcid.org/0000-0003-0358-9378 Acknowledgements and Financial Disclosure This research work came into fruition under reference No: FPO/R&I/IBR/VOL.1/01 entitled ‘Financial Deepen- ing and Human Development in Nigeria’ financed by Nigerian Tertiary Education Fund (TETFund) and the re- search was conducted by M.A. Afolabi between 2021 and 2022. I would like to express my sincere appreciations to TETFund Board of Trustee, FEDpoffa Director of Research and Innovation and the anonymous referees for their useful comments. Conflict of Interest T The author hereby declare that there was no any financial that could influence the result of this research. Copyright and License This article is published under the terms of the Creative Commons Attribution – NoDerivs (CC BY-ND 4.0) License http://creativecommons.org/licenses/by-nd/4.0/ Published by Cracow University of Economics – Krakow, Poland