BANKING SECTOR DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA
No Thumbnail Available
Date
2017
Journal Title
Journal ISSN
Volume Title
Publisher
Department of Finance, Faculty of Management Sciences , University of Ilorin, Ilorin. Nigeria.
Abstract
Economic growth of a country whose financial sector is bank-based like Nigeria revolves round the development of banking sector. Studies have however claimed that Nigeria banking sector is still underdeveloped and the sector has performed below expectations in its role of promoting economic growth of the country. This study therefore assessed the effect of banking sector development on the Nigeria's economic growth. Annual time series data from 1981 to 2015 were collected from Central Bank of Nigeria (CBN) statistical bulletin and World Bank website. Augmented Dickey Fuller (ADF) test was conducted to ascertain the order of integration of the series. Johansen co-integration test was performed which confirmed the existence of long run relationship between variables. Error Correction Model (ERM) approach was finally used to estimate the speed of adjustment from the short-run disequilibrium. The result of ECM shows that all the variables except private credit and bank deposits have positive and significant effect on growth rate of GDP at 0.05 level of significance. The Error Correction Term (ERT) indicates that the disequilibrium in previous period was corrected at the rate of 40%. The study concludes that banking sector development have both long run and short run effect on the Nigerian economic growth.
It is therefore recommended that banks in Nigeria should improve their administration of credit to private sector to ensure that the funds are properly channeled to productive ventures. CBN should tailor its monetary policies towards improving the level of financial deepening, controlling inflation and enhancing the deposit base of banks; as all these will promote economic growth via the banking sector.
Description
Keywords
Bank, Banking, Development, Growth, Co-integration, Nigeria