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

Joseph Olusegun Ajibola

doi:10.4236/oalib.1101431

Home > Journals > Biomedical & Life Sciences | Business & Economics > OALibJ

OALibJ> Vol.2 No.5, May 2015

Share This Article:

Open Access

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

Abstract Full-Text HTML XML

Download as PDF (Size:269KB) PP. 1-8

DOI: 10.4236/oalib.1101431 1,006 Downloads 2,469 Views Citations

Author(s) Leave a comment

Joseph Olusegun Ajibola

Affiliation(s)

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

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.

Cite this paper

Ajibola, J. (2015) Commercial Bank Lending and Economic Growth—The Nigerian Experience (1970-2013). Open Access Library Journal, 2, 1-8. doi: 10.4236/oalib.1101431.

References

[1]	Feakins, M. (2004) Commercial Bank Lending to SMEs in Poland. Small Business Economics. Small Business Economics, 23, 51-70. http://dx.doi.org/10.1023/B:SBEJ.0000026025.04815.bc

[2]	Soyibo, A. and Adekanye, F. (1992) The Nigerian Banking System in the Context of Policies of Financial Regulation and Deregulation. AERC Research Paper, Final Report.

[3]	United Nations (1977) Report of the Export Group Meeting on the Role of Development Finance Institutions in National Economic Development. UNIDO, New York.

[4]	Kuznets, S. (1966) Modern Economic Growth: Rate, Structure, and Spread. Yale University Press, New Haven, Chapter 2 & 4.

[5]	Lewis, W.A. (1954) Economic Development with Unlimited Supplies of Labour. The Manchester School of Economics and Social Sciences, Manchester, 155.

[6]	Ohkawa, K. (1993) Growth Mechanism of Developing Economies. International Centre for Economic Growth and International Development Centre of Japan, Tokyo.

[7]	Kuznets, S. (1973) Economic Growth of Nations: Total Output and Production Structure. Harvard University Press, Cambridge.

[8]	Abramoitz, M. (1989) Thinking about Growth. Cambridge University Press. Cambridge, Part II, 7. http://dx.doi.org/10.1017/CBO9780511664656

[9]	Soyibo, A. and Adekanye, F. (1991) Financial System Regulation, Deregulation and Savings Mobilization in Nigeria. AERC Research Paper, Final Report.

[10]	Adelman, I. and Morris, C. (1993) Society, Politics and Economic Development: A Quantitative Approach. John Hopkin, Baltimore.

[11]	Porter, R. (1966) The Promotion of the Banking Habit and Economic Development. Journal of Development Studies, 2, 346-366. http://dx.doi.org/10.1080/00220386608421196

[12]	Levine, E. (2009) Lin Roundtable: Function, Not for Free Exchange. Economist.comblogs.

[13]	McKinnon, R.I. (1973) Money and Capital in Economic Development. The Brookings Institute, Washington DC.

[14]	Shaw, E. (1973) Financial Deepening in Economic Development. Oxford University Press, New York.

[15]	Jalilan, H. and Kirkpatrick, C. (2005) Does Financial Development Contribute to Poverty Reduction? Journal of Development Studies, 41, 636-656. http://dx.doi.org/10.1080/00220380500092754

[16]	Kunbhakar, S. and Mavrotas, G. (2008) Financial Sector Development and Productivity Growth. In: Guha-Khasnobis, B. and Mavrotaseds, G., Eds., Financial Development Economics and Policy, Oxford University Press, Oxford, Research Paper: 2005/68.

[17]	Thoma, M. (2009) Lin Roundtable: Small Banks Need Help.

[18]	Somoye, R.O. and Ilo, B.M. (2009) The Impact of Macroeconomic Instability on the Banking Sector Lending Behaviour in Nigeria. Journal of Money, Investment and Banking, 7, 88-100.

[19]	Wright, R. (2001) Origins of Commercial Banking in the United States. Littlefield Publishers, Rowman. London and New York, also EH.net.

[20]	Walras, L. (1954) Elements of Pure Economics. Trans. and Ed. W. Jaffe, Allen and Unwin, London.

[21]	Solow, R.M. (1970) Growth Theory: An Exposition. Clarendon Press, Oxford.

[22]	Harrod, R.F. (1934) The Expansion of Credit in an Advancing Economy. Economica, 287-299.

[23]	Keynes, J.M. (1936) The General Theory of Employment, Interest and Money. Macmillan, London.

[24]	Harrod, R.F. (1934) The Expansion of Credit in an Advancing Economy. Economica, 287-299.

[25]	Robinson, J. (1962) Essays in the Theory of Theory of Economic Growth. Macmillan, London.

[26]	Kaln, R.F. (1959) Exercises in the Analysis of Growth. Oxford Economic Papers, 11, 143-156.

[27]	Solow, R.M. (1970) Growth Theory: An Exposition. Clarendon Press, Oxford.

[28]	Levine, E. (2009) Lin Roundtable: Function, Not for Free Exchange. Economist.comblogs.

[29]	Barror, R. (1991) Economic Growth in a Cross Section of Countries. Quarterly Journal of Economics, 106, 407-443. http://dx.doi.org/10.2307/2937943

[30]	Engel, R. and Granger, C. (1987) Co-Integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276. http://dx.doi.org/10.2307/1913236

[31]	Central Bank of Nigeria (1958) Central Bank of Nigeria Acts. CBN, Lagos.

[32]	Central Bank of Nigeria (2003) The Bullion, 27.

[33]	Central Bank of Nigeria (1985) Monetary Policy Circular for the 1985 Fiscal Year. Central Bank of Nigeria, Lagos.

[34]	Central Bank of Nigeria (1987) Monetary Policy Circular for the 1987 Fiscal Year. Central Bank of Nigeria, Lagos.

[35]	Central Bank of Nigeria (1988) Monetary Policy Circular for the 1988 Fiscal Year. Central Bank of Nigeria, Lagos.

[36]	Central Bank of Nigeria (1990) Prudential Guidelines for Licensed Banks. CBN, Lagos.

[37]	Central Bank of Nigeria (1989) Monetary and Credit Policy Guidelines for 1993 Fiscal Years. Central Bank of Nigeria, Lagos.

[38]	Central Bank of Nigeria (1993) Monetary and Credit Policy Guidelines for 1993 Fiscal Years. Central Bank of Nigeria, Lagos.

[39]	Central Bank of Nigeria (1996) Statistical Bulletin. CBN, Lagos.

[40]	Central Bank of Nigeria (1996) Monetary Policy Circular for the 1994, 1995 and 1996 Fiscal Years. Central Bank of Nigeria, Lagos.

[41]	Central Bank of Nigeria (2006) Monetary Policy Circular for the 2004, 2006 Fiscal Years. Central Bank of Nigeria, Abuja.

[42]	Nigeria Deposit Insurance Corporation, NDIC (1995) NDIC Quarterly, 4, 12-13.