Commercial Bank Lending and Economic Growth—The Nigerian Experience (1970-2013)

Joseph Olusegun Ajibola

Department of Economics, Banking and Finance, Babcock Business School, Babcock University, Ilishan-Remo, Nigeria.

DOI: 10.4236/oalib.1101431                

Abstract

This paper examines the effects of commercial bank lending on economic growth in Nigeria for the period 1970-2013, using the rise in non-oil GDP as a measure of economic growth. The theoretical underpinning of the role of commercial bank lending in economic growth is based on the combination of the quantity theory of money and aggregate production function. To determine the relationship between the two variables, therefore, a preliminary co-integration analysis (unit root test) was carried out on the variables at levels. Also, the relative rates of changes were statistically determined for the variables and multiple regressions were carried out for the variables with the basic regression model defined as Yr = a₁＋a₂Lr＋a₃Br＋a₄Br-₁＋e₁. The study showed an increasing importance of commercial bank lending to economic growth in Nigeria, more so that commercial banks accounted for over 60% of total loans provided by the banking system for the period. The linear regression model (OLS) revealed a positive correlation between economic growth and commercial bank loans for one year lagged period showing some slowness in the transmission mechanism between the financial and the real sectors of the economy. The overall results therefore conform to our a priori expectation that bank credit generally is an enabler for economic growth, although at a fairly sluggish pace.

Keywords

Economic Growth, Non-Oil GDP, Commercial Bank, Bank Credit

Conflicts of Interest

The authors declare no conflicts of interest.

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