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Using secondary data from 1981 to 2012, this paper empirically examines the
impact of financial liberalization on private savings and private investment in Nigeria
within the framework of the McKinnon-Shaw Hypothesis. The Ordinary Least Squares
Methodology was adopted and cointegration analysis was carried out. The study finds that
financial liberalization had a significant negative impact on private savings and a
significant positive impact on private investment within the period under review. The
cointegration result shows evidence of a long-run relationship among the variables.
Furthermore, the error correction model shows a significant speed of adjustment to
equilibrium for the private investment model but none for the private savings model. The
studytherefore concludes that the Nigerian government and policy makers should formulate
complementary policies that will support private savings and also strengthen private
investment in the Nigerian economy. This is how the benefits of the liberalization process
can be enhanced in the economy.
