Bank Credit and Economic Growth in Nigeria: A Study of Credit Allocations to Small and Medium Scale Enterprises in Nigeria

Abstract

This study examined bank credit and economic growth in Nigeria. Bank credit was proxied by credit to the agricultural sector SME’s and credit to the manufacturing sector SME’s. On the other hand, economic growth was measured using real gross domestic product. Relevant data were extracted from the annual Statistical Bulletin of the Central Bank of Nigeria. Unit root test was conducted using Augmented Dickey Fuller method which revealed that the variables were integrated at first difference except for loans to the manufacturing sector which was integrated at level. Cointegration test was also conducted to determine long run relationship. More so, the ARDL ECM test was carried out to ascertain the relationship among the variables. The results revealed that a significant relationship exist between back credits to the agricultural and manufacturing sectors SME’s and economic growth; credit to agricultural sector SME’s and economic growth; credit to manufacturing sector SME’s and economic growth. Based on the findings of the study, the study recommends amongst others, the method, mechanisms and processes the banks use in giving and managing these loans to the agricultural and manufacturing sectors, must be maintained and improved on as they have been found to have a positive impact in the economy.