The Impact of Bank Credit on the Growth of Nigerian Economy: A Co Integration Approach

Abstract

This work investigated the impact of bank credit on the growth of Nigerian economy for the period of 1986-2012. The data was sourced from CBN statistical bulletin. To determine the impact of the independent variables on the dependent OLS method of estimation was employed. ADF was used to determine the order of integration, and all the variables were found to be integrated of same order one I(1). The Johansen and Juselius co-integration test was employed and the result showed that there is at most one co-integrating equation in the model, implying that there is a long run relationship between the variables in the model. The result of the OLS regression showed that there is a negative and significant relationship between GDP and TBCPS in the long run. M2 which was used as control variable has a positive and significant impact on GDP at the long run. The ECM showed that 24.03% of the disequilibrium will be corrected yearly. The short run dynamics of the variables indicates that TBCPS also have a negative and insignificant impact on GDP at the short-run. The result of the granger causality test reviles that causation runs from GDP to TBCPS and not the other way round, a case of unidirectional causality. The result also showed bidirectional causality between TBCPS and M2. And based on the forgoing it was recommended that CBN should lower the lending rate by manipulating the monetary policy rate, direct credit control should also be adopted by the CBN in other to improve the contribution of the informal sector. The government should improve on the infrastructural facilities in the country at the same time improve the level of security in this country by tackling the issue of Boko Haram sect and Militancy in Niger Delta.

Key words: Bank Credit, Economic Growth, Co-integration.