CREDIT TO THE PRIVATE SECTOR AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM NIGERIA
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This study empirically examined the impact of credit to the private sector on economic growth in Nigeria using time series data from the period of 1986 to 2016. Dependent variable was GDP growth rate (GROWTH), as proxy for Economic Growth. Credit to the Private Sector (PSCR) was the main explanatory variable, while other explanatory variables were; Broad Money Supply (M2),
Real Interest Rate (RINT), Labour Rate (LABR), Gross Fixed Capital Formation (GFCF). Augmented Dickey Fuller (ADF) unit root test was used to test for the stationarity properties and order of integration of the data used in the study, the result revealed that Real interest rate was stationary at levels, while all other variables were found to be stationary at their first difference. The Vector Autogressive (VAR) econometric technique of estimation was employed to detect the
effect of Credit to the Private Sector on complete time path of Nigerian economic growth and vice
versa. Research findings revealed that the response of GROWTH to most of the shocks (impulses)
were positive except for Interest Rate while GROWTH appeared to be unresponsive to the Interest
Rate shocks. Under the Credit to the Private Sector bloc, the first 2 lags of PSCR being significant
at the 5 percent and 1 percent level respectively, are found to be significant predictors of the
dependent variable (PSCR). Furthermore, the estimation result shows that factors like LABF (the
three lags) and RINT (third lag) are equally significant determinants of PSCR. The study therefore
recommends that government should formulate policies to boost private sector credit so that banks
and other financial institutions can increase lending to the Nigerian economy.
Keywords
H Social Sciences (General), HG Finance