Analysis of the Bank Credit, Economic Growth Nexus in Nigeria

Abstract

In spite of Nigeria’s recent ranking as one of the fastest growing economies in world, it is paradoxical that the rapid growth has not impacted on the welfare of the citizens and residents as poverty incidence has persistently been on the rise. Bank credit has been widely recognized as a veritable means of lifting people out of the abyss of poverty. This study was designed to appraise the bank credit, economic growth nexus in Nigeria, using annual time series data from 1970 to 2011. The paper specifically attempts to determine the flow of causality between private sector credit and economic growth. The research employed unit root, and granger causality tests. The study revealed that there exist a unilateral flow of causality which runs from bank credit to economic growth at 5% level of significance both in the short and long run.  The paper therefore recommends that the Central Bank of Nigeria  should prescribe and enforce rules on sectoral allocation of credit between the private and public sectors with a tilt towards the former, leverage credit disbursement as a tool for driving economic growth, and ensure that credit growth does not compromise credit quality.

Keywords: Bank Credit, Economic Growth, Granger Causality, Unit Root.