The Implications of Credit Creation by Banks on Economic Growth of Nigeria

Abstract

This study investigates the implications of credit creation by banks on the economic growth of Nigeria. Data for the study spanning 1985 to 2015 were collected from the Central Bank of Nigeria’s Statistical Bulletin and analysed using Ordinary Least Square(OLS), Augmented Dickey-Fuller Unit Root Test and Co-integration. The result of the OLS shows a positive and significant effect of credit creation of bank on economic growth of Nigeria. The unit root test results reveals that variables are stationary and does not have a unit root problem at 5%, first differencing and at lag 2 within the period considered. Based on the hypothesized number of co-integrated equation(s), it is revealed that both the Trace and Max-Eigen statistical test has four and two co-integrating equation because their p-value is lesser than the test of significance at 5%; we therefore reject the null hypothesis and conclude that there is four and two co-integrating equation between the variables. The paper notes that credit creation is germane to economic growth of Nigeria and therefore recommends that the banking sector should be strengthen to mobilize stable  funds in other to facilitate the necessary funding of the real sector. Also, the regulatory authorities to monitor and execute designed policies adequately to achieve the set goals and objectives. Government should be able to keep inflation and interest rate particularly on lending at a pace that will stimulate economic growth in Nigeria

Keywords: Economic Growth, Credit creation, Banks.