Deposit Money Banks' Credit and Nigerian Economic Growth and Development (1981-2015)

Abstract

This paper evaluated the effects of DMBs credit on economic growth and development in Nigeria (1981-2015). Theories of financial liberalisation holds that economic growth in a developing economy rest on an efficient financial sector that pools domestic savings and mobilizes foreign capital for productive investments. The specific objectives of the study are to: examine the the relationship between DMBs’ credit to private sector and the real Gross Domestic Product (RGDP) in Nigeria; access the relationship between DMBs’ credit and infrastructural development in Nigeria and; to determine the relationship between DMSs’ total credit and real GDP in Nigeria. The study adopted multiple regression approach on an annual time series data spanning from 1981 to 2015 and estimated single equation models using Ordinary Least Square (OLS) regression framework. The study also investigated the stochastic nature of the time series by conducting stationarity test using Augumented Dicker-Fuller (ADF) test. The existence of longrun relationship between economic growth (proxied by RGDP), economic development and DMBs credit using Philip-Qualiris cointegration framework was also conducted successfully. The findings of the study indicate that total credit by DMBs to all sectors of the economy is positively and significantly related with economic growth and development. However, while DMBs credit to private sector drives growth, DMBs credit to public sector frustrates growth due to crowding out effect. The paper recommends that DMBs should be encouraged to direct their credit to priority sectors of the economy. Secondly, government should reduce its domestic borrowing in order not to crowd out private sector borrowing. The paper concludes that DMBs credit is a key driver of economic growth and development in Nigeria.