To what extent does banks’ credit stimulate economic growth? Evidence from Nigeria

Abstract

This study examines the extent to which banks’ credit affects economic growth in Nigeria. The data used was collected from the Central Bank of Nigeria statistical bulletin for a period of 24 years from 1990 to 2013. We used credit to the private sector, credit to the public sector and inflation to proxy commercial bank credit while Gross Domestic Product proxies economic growth. Augmented Dickey- Fuller (unit root) test was used to test stationarity which reveals that all the independent variables and dependent variable were stationary at first difference, the trace statistics and maximum eigen value test were used to test for cointegration. The result shows that the lagged value of credit to the private sector is positively and significantly influencing economic growth in Nigeria while the lagged value of credit to the public sector shows a positively insignificant relationship with GDP. Lagged value of inflation shows a negatively significant relationship with economic growth. It is therefore recommended that the government should ensure that auditing of their financial statement is done as at when due to reduce the rate of misappropriation of fund in public offices.

Keywords: Economic growth, banks, credit, inflation