THEORETICAL FRAMEWORK This
section examines the various approaches that have been proffered in the
theoretic development of the concepts relevant to this paper. Thus, theoretical
issues in financial inter mediation and the link with economic growth have been
explored.
THEORY OF FINANCIAL INTER-MEDIATION Credit is an important aspect of financial
intermediation that provides funds to those economic entities that can put them
to the most productive
use. Theoretical studies have established the
relationship that exists between financial inter-mediation and economic growth.
For instance, Schumpeter (1934), Goldsmith (1969), McKinnon (1973) and Shaw
(1973), in their studies, strongly emphasized the role of financial inter-mediation in economic growth.
In the same vein, Greenwood and Jovanovich
(1990) observed that financial development can lead to rapid growth. In a
related study, Bencivenga and Smith (1991) explained that development of banks
and efficient financial inter-mediation contribute to economic growth by
channeling savings to high productive activities and reduction of liquidity
risks. They therefore concluded that financial inter-mediation leads to growth.
Based on this assertion, this study examines the extent to which inter-mediation
or credit to various sectors of the economy has influenced economic growth in
Nigeria