Abstract
This study examined the effect of money supply on private sector funding in Nigeria. The purpose of the study was to examine the extent to which monetary policy affect private sector funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector was used as dependent variables while narrow money supply, broad money supply, large money supply, private sector demand deposit was used as independent variables. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that money supply explains 82.1 percent variation on credit to core private sector, 85.2 percent and 23.4 percent of the variation in credit to private sector and credit to small and medium scale enterprises sector. The study conclude that money supply has significant relationship with credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector. From the findings, the study recommends that Central Bank of Nigeria should induce the variations of the amount of money changes through the nominal interest rates. That the monetary authorities should ensure adequate quantity of money supply that positively affect private sector funding in Nigeria.
Highlights
There are four sectors of the economy as formulated in the nation’s income accounting model and shown in the circular flow of income and products
From the above problems and knowledge gap, this study examined the effect of money supply on private sector funding in Nigeria
Imoughele and Ismaila (2014) employed Co-integration and Error Correction Modelling (ECM) techniques to investigate the impact of commercial bank credit on Nigeria's SMEs between 1986 and 2012.The results revealed that SMEs and selected macroeconomic variables included in the model have a long run relationship with SMEs output
Summary
There are four sectors of the economy as formulated in the nation’s income accounting model and shown in the circular flow of income and products. These are the government (public), private sector, the household and the external sector. The private sector plays significant role in every economy. It drives growth, create jobs and pay the taxes that finance services and investment. In Nigeria the private sector generates 90 per cent of jobs, funds 60 per cent of all investments and provides more than 80 per cent of government revenues (Somoye, and Iio, 2009). The goal is not to invest in the highest returning asset, but rather to invest in well-compensated risks
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