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.
Cite this paper
Ajibola, J. O. (2015). Commercial Bank Lending and Economic Growth—The Nigerian Experience (1970-2013). Open Access Library Journal, 2, e1431. doi: http://dx.doi.org/10.4236/oalib.1101431.
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.
United
Nations (1977) Report of the Export Group Meeting on the Role of Development Finance
Institutions in National Economic Development. UNIDO, New York.
Ohkawa,
K. (1993) Growth Mechanism of Developing Economies. International
Centre for Economic Growth and International Development Centre of Japan, Tokyo.
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
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.
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.
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