This research examined the effect of financial system liberalization on volume of funding available to the manufacturing/industrial sector and the resultant output behaviour in the Nigerian economy. Interestingly, data examined covering 27 years from 1980 to 2007 reveal a gradual deepening of the financial system and greater disbursement of loans to the manufacturing sector of the economy. The research shows that manufacturing could be an engine of modernization and growth of emerging market economies. This sector can help create lots of jobs. In Nigeria this sector is small with considerable potential for growth thus helping to galvanize economic growth. However, this is possible with increasing financial system liberalization.