THE LINK BETWEEN BANK CREDIT AND PRIVATE SECTOR INVESTMENT IN NIGERIA FROM 1980-2014

Abstract

This study attempts to investigate the link between bank credit and private sector investment in Nigeria from 1980 to 2014 using Ordinary Least Square (OLS) regression procedure. The study also employs other preliminary investigations which include, unit root, cointegration and Granger causality test procedures. The OLS result indicates that the coefficients of the variables which include, banks credit to the private sector (CRPRIVAT), trade openness (OPEN), exchange rate (EXCHR) and total bank saving (BSAVING) exhibit positive signs to the dependent variable, private investment (INVEST) during the period under review, while the coefficients of two other variables, capital expenditure (CAP) and interest rate (INTR) indicate negative signs to the dependent variable. The stationarity test result shows that all the variables under consideration are stationary and integrated of order one at 5% significance level. Also, the cointegration test result indicates at most five cointegrating equations at 5% level of significance. The Granger causality test result shows that a bi-directional causality exists between banks credit and private investment and also between private investment and capital expenditure, while a uni-directional causality exists from exchange rate to private investment.Statistically, the descriptive statistics result indicates that all the variables have a positive mean values which ranges from 18.05390 to 2427052 with 34 observations.The correlation test result obtained shows that four variables, CRPRIVAT, OPEN, EXCHR and BSAVING have positive relationships with the dependent variable INVEST. The t-statistic result shows that five of the variables which includes, CRPRIVAT, OPEN, CAP, INTR and EXCHR are statistically significant at 5% significance level. The study recommends that there is a need for increased Federal government support to banks in terms of policies that would encourage lending to the private sector in Nigeria.