Effect of Money Market Instruments on Economic Growth of Nigeria

Abstract

Despite the importance of money market instruments in fostering liquidity and financing shortterm investment, Nigeria’s economic growth remains volatile and constrained by weak financial intermediation. This study examined the effect of money market instruments on Nigeria’s economic growth from 1983–2025, using real gross domestic product (RGDP) as a proxy for economic growth and commercial papers and transaction volumes as indicators of money market instruments. Secondary data were sourced from the Central Bank of Nigeria Statistical Bulletin and analysed using the Discrete Threshold Regression technique to capture nonlinear dynamics overlooked by conventional models. The findings revealed that commercial papers exerted an insignificant effect at very low issuance levels but became strongly positive and significant once critical thresholds were surpassed, indicating that a deepened commercial paper market enhances corporate financing and stimulates growth. Similarly, transaction volumes exerted a positive and significant influence across regimes, with stronger effects as market activity expanded, reflecting the role of deep money markets in mobilising savings and improving liquidity flows. The results affirm that robust money market development is crucial for reducing reliance on bank credit, strengthening financial intermediation, and sustaining growth amid domestic and global shocks. The study concluded that Nigeria’s economic growth trajectory is more responsive to deepening commercial papers and transaction volumes. The study recommended that policymakers should target reforms to expand money market depth, improve corporate access to short-term financing, and stabilise the macroeconomic environment to maximise growth benefits.