Abstract
The paper assessed interest rate impact on economic growth in Nigeria, considering the stakeholders' approach. The continuous increase in interest rate always results to a slow economic growth. It is believed that interest rate may not eventually lead to lull economy especially in industrialized economies because these economies do not totally rely on assembling and consumption of goods and services, but majorly on production and distribution of goods and services(1). The study adopts simple ordinary least square method to identify existing relationship between variables. The regression results were significant and Error Correction Mechanism helped to correct the dynamism that might exist. The time series analysis was adopted for 40 years (1970- 2010), which shows evidence and supports that larger proportion of borrowing by Nigerian government, which are majorly financed by the apex bank has led to uncontrollable excess liquidity and inability of locally manufacturing firms, and small enterprises to raise loanable funds from banks. The paper therefore concluded that it will be difficult to generalize interest rate as equal either in developed or developing economies as result of the significant and un-comparable difference in social -economic belief, approaches and existing structures. It suggests that interest rate should play an un-comparable role in enhancing economic growth and sustainable activities in Nigeria.
Highlights
Interest rate may be regarded as a return on investment or cost of capital
Findings show that interest rate is invariant with respect to changes in anticipated inflation and it remains one of the economic tools to stimulate economic growth
The study shows that interest rate will automatically assist in the mobilization and utilization process of financial resources to achieve a desired economic growth, but the administered structure of interest rate is weak in Nigeria
Summary
Interest rate may be regarded as a return on investment or cost of capital. It plays a major roles in the pursuit of macro-economic stabilization in Nigeria. The need for a strong reliable and viable financial sector is underscored by the fact that the industry is one of the few sectors in which the shareholders’ fund is only a small proportion of the liabilities of the enterprise In all ramifications, this makes the banking sub sector the most regulated sector in any economy [6]. CBN’s ability to actively control inflation in the short-run may be difficult but in long-run is possible in a guided economy- which is common in developed economies[7].The ability of Central Bank of Nigeria (CBN) to effectively manage and control monetary policy instruments interest rate will prevent increase in money supply from becoming a major source of disturbance to Nigerian economy[8]. Section three addresses issues on research methodology, section four explains the empirical results and section five makes the concluding phase
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