Impact of Bank Credit on Real Sector Growth in Nigeria

Abstract

This study examined the impact of bank credit on real sector growth in Nigeria from 1986 to 2019. Times series data was used for the study. Ordinary least square, ARDL and ECM were used to analyze the data. In this study, Agricultural Output (AGO) and Manufacturing Output (MANO) were used as proxy for real sector growth while Bank Credit proxies were Credit to Private Sector (CPS), Inflation Rate (INF) and Lending Rate (LDR). The result of the ordinary least square revealed that CPS was positively and significantly related to the real sector, INF was negatively and insignificantly related to the real sector, while LDR was found to be positively and significantly related to the real sector. However, the result of ARDL from Bound Test showed that there was long run relationship between bank credit and the real sector. Also, the result from ECM through impulse response function revealed that the credit to private sector and inflation rate move in positive and negative directions but closer to zero. While lending rate moves in negative direction away from zero. The study concluded that the real sector is positively influenced by credit to private sector with little contribution. Whereas, inflation rate was inversely related to the real sector. Lastly, the lending rate responded negatively and moved further away from zero in the impulse from the real sector. The study therefore recommended that the CBN should increase the proportion of credit to private sector and at the same time control lending rate. Also, machinery to meet up with the targeted inflation rate must be put in place. Keywords: Agricultural output, manufacturing output, inflation, lending rate, credit to private sector, ordinary least square. DOI: 10.7176/EJBM/14-4-03 Publication date: February 28 th 2022