CASH CRUNCH AND THE NIGERIAN ECONOMY

Abstract

This study examined cash crunch and the Nigerian economy. To achieve this objective, relevant data used spanning from 1981-2022 were obtained for the review period from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Indicators. Descriptive statistics, Augmented Dickey Fuller (ADF) Unit root test, Granger causality and Ordinary Least Square (OLS) regression were the analytical tools for this study. Real Gross Domestic Product growth rate (RGDPgr) was used as the dependent variable, while Cash crunch proxy with prime lending rate (CC), Domestic credit by Banks to private sector (DCBPS), Loan to deposit ratio (LDR), Inflation Rate (INFR), Money supply growth rate (MSgr) as the independent variables. Based on the analysis, there exist positive relationship between RGDPgr, CC, DCBS, LDR, and M2gr and a negative relationship existed RGDPgr and INFR. The F-statistic of the regression output stood at 6.208930, this implies that the regression plane is statistically significant. It was also, revealed that cash crunch had negative and significant effect on the Nigerian economy C = -11.97721, P < 0.05 (0.0265 < 0.05), while the overall Prob.(F-Statistic) 0.000302 is less than the 0.05 level of significance implies that there is a statistical significant relationship between the variables. R2= 0.463044 implies that about 46.30% of the total variation in the model specified was accounted for by the independent variables. LDR is platykurtic, RGDPgr, CC, DCBPS, INFR and M2gr are leptokurtic, according to the descriptive analysis, which also showed that all the variables were normally distributed; All the variables were stationary and significant at their respective values. There is the existence of a long-run relationship between the variables indicated by Johansen co-integration equation. Therefore, cash crunch has negative effect on investment in an economy. In conclusion, cash crunch had negative and significant impact on the expansion of Nigerian economy for the period studied. The study recommended that the government through CBN should modified most of its tools and incorporate some of the macro prudential variables in its dealings so as to have robust grips of the economy with the intention of suppressing the adverse effect of inflationary pressure in the economy.
 Keywords: Cash Crunch, Domestic Credit By Banks To Private Sector, Inflation, Money Supply And Nigerian Economy.