Bank Credits and Rural Development in Nigeria (1982-2009)

Tajudeen Egbetunde

doi:10.5923/j.ijfa.20120103.04

Tajudeen Egbetunde

Open Access

https://doi.org/10.5923/j.ijfa.20120103.04

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Abstract

The paper examines the relationship between commercial bank credits indicators and rural economic growth in Nigeria. Using a double-log equation within the context of Ordinary Least Square (OLS) framework and co-integration test, the study finds that rural economic growth is co-integrated with bank credits indicators in Nigeria. Within the OLS framework, the evidence of positive relationship exist between rural economic growth and commercial bank rural loans as well as commercial bank loans to agriculture and rural economic growth at p < 0.01 in the economy, while deposits of rural dwellers were negatively impacted on rural economic growth at p < 0.01. Based on these results, the paper argues that the rate at which commercial bank credits in terms of loans and deposits of rural dwellers contributed to rural economic growth in Nigeria were very high. Therefore, these indicators of commercial bank credits in the development of economic activities in rural areas should be properly managed in order to improve the well-being of the rural dwellers which in turn improve economic growth in Nigeria.

Highlights

In Nigeria, credit has been recognized as an essential tool for promoting Small and Medium Enterprises (SMEs)
The paper investigates the relationship between commercial bank credits indicator and rural economic growth in Nigeria using a double-log equation within the context of Ordinary Least Square (OLS) framework
The relationship shows that commercial bank credits in terms of loans to rural areas have positive and significant impact on rural economic growth in Nigeria while deposits of rural dwellers in commercial banks have negative and significant effect on rural economic growth in Nigeria

Summary

Introduction

In Nigeria, credit has been recognized as an essential tool for promoting Small and Medium Enterprises (SMEs). To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve agricultural production capabilities, positively channel the potential of SMEs to enhance their standard of living and to put the sector in the front burner of Government’s development strategy. Functions is the acceptance of deposits from the public These deposits are in turn given as credit to Small and Medium Scale Enterprises among other, which led to more production and provision of employment opportunities in the economy,[13, 18, 19, 39]. Not all contributions in terms of deposits in bank are used for the development of rural sector, this study investigates whether contributions of rural dwellers in financial institution in Nigeria serve as crowd-in effect or crowd-out effect on the living standard of people residing in the area.

Theoretical Perspectives

Johansen Co-Integration Analysis

Estimation Technique

Empirical results and discussion

Findings

Conclusions