Effect of Monetary Policy, Financial Inclusion, and Economic Growth in Nigeria

Abstract

This study examines the impact of monetary policy and financial inclusion on economic growth in Nigeria from 2004Q1 to 2024Q4 using quarterly data from the CBN, the World Bank development indicators and the national statistics bureau. The study uses a quantitative ex post facto time series approach, incorporating monetary policy variables; the monetary policy rate (MPR), the money supply (M2) and the exchange rate (EXR) together with financial inclusion indicator, number of commercial bank branches and inflation, while controlling inflation. Unit root tests confirm the mixture of variables I(0) and I(1), which justifies the use of an Autoregressive Distributed Lag (ARDL) model for both short- and long-term dynamics. The results show that, in the short term, exchange rate changes and bank branch expansion have significantly boosted economic growth, while inflation has had a moderate negative impact and traditional monetary policy instruments have had only a negligible impact. Financial inclusion, both through physical and fintech-enabled banking channels, will underpin sustainable growth in the long term, although inflation and exchange rate volatility have a mixed impact. Granger's causality tests reveal no direct causal link between branch expansion and growth, underlining that financial inclusion is not enough in itself without complementary monetary policies, digital financial services, and financial literacy. The study recommends that digital banking be integrated into physical branches, monetary policies designed to promote inclusive access to finance and national financial literacy programmes be implemented to maximize growth.