Commercial Banks’ Sectoral Credit Allocation and Growth of Nigeria Economy: An Impact Analysis (1994-2015)

Abstract

This study set out to analyse the impact of commercial banks sectoral credit allocation on the growth index of Nigeria economy. Data for the study were obtained from secondary sources and analysed using econometric methods namely: ADF unit root test, Johansen Cointegration test; vector error correction model and Granger causality test. The ADF test result indicate that the variables are stationary at first difference. The Johansen cointegration result revealed that there are three cointegrating equations among the variables. The vector error correction result indicate that economic growth is a positive and significant function of credit to agriculture, manufacturing and general services. The result of Granger causality shows that credit to agriculture is bidirectionally related to economic growth while credit to manufacturing sector granger causes economic growth without a feedback effect. The study therefore recommended that government should provide the enabling environment for small, medium and large business to operate. This could be do ne thro ugh business friendly monetary and fiscal policies. Commercial bank should reduce the interest rates on lendings to facilitate operations in various sectors and increases growths.

Key Words: Credit, sectoral allocation, economic growth; liquidity; liability management