Impact of Nigerian Economy Commercial Banks on Economic Growth in Nigeria

Filed in Articles by on November 25, 2022

 – Impact of Nigerian Economy Commercial Banks on Economic Growth in Nigeria –

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ABSTRACT

The Nigerian commercial bank industry has gone through various policy measures so as to achieve economic growth.

Despite the use of the direct monetary instruments, monetary aggregates, government fiscal deficit, GDP growth rate, inflation rate, and the balance of payments position moved in undesirable directions.

Hence, this study tries to investigate the impact of commercial bank deposits on economic growth in Nigeria employing certain control variables such as nominal interest rate and inflation.

The study was done with the Ordinary Least Square (OLS) method and Granger Causality tests using annual data from 1981 to 2013. The study found that there is a positive relationship between commercial bank deposits and economic growth in Nigeria.

The ADF unit root test showed that all the variables are stationary at first difference. More so, it was also found that there is a long-run relationship between the variables of interest detected by the Johansen cointegration test and the Granger causality test.

The research result supports the endogenous growth model which believes that a strong financial institution can facilitate economic growth. One of the major findings of the study is the activities of commercial banks can be used to control economic activities in Nigeria.

Among the recommendation of this study, the financial institution should build a financial environment that is safe, reliable and rewarding so as to attract deposits from people.

INTRODUCTION

Background of the Study

Finance is required by different people, organizations, and other economic agents for different purposes. To provide the needed finance, there are various institutions rendering financial services. These institutions are called financial institutions.

Financial institutions are divided into money and capital market. In the money market, we have commercial banks that render financial services in terms of intermediation.

This involves channeling funds from the surplus spending to the deficient spending units of the economy, therefore, transforming bank deposits into credits (Yabubu and Affoi, 2013).

The role of financial institutions in economic development has been known to make credit available to various economic agents to enable them to meet operating expenses.

For instance, business firms obtain credit to buy machinery and equipment, farmers collect loans to buy seeds, fertilizers, erect various kinds of farm buildings, government bodies obtain credits to meet various kinds of recurrent and capital expenditures.

Furthermore, individuals and families also take credit to buy and pay for goods and services (Adeniyi, 2006). Ademu, (2006) posited that the provision of credit with sufficient consideration for the sector’s volume and price system is a way to generate self-employment opportunities.

This is because credit helps to create and maintain a reasonable business size as it is used to establish and/or expand the business, to take advantage of economies of scale.

REFERENCES

Ademu, W. (2006). The Informal Sector and Employment Generation in Nigeria. Proceedings of the 2006 Annual Conference of the Nigerian Society. Calabar: August 22nd-24th.

Adeniy, O. (2006). Bank Credit and Economic Development in Nigeria: A Case Study of Deposit Money Banks. Jos: University of Jos.

Ahuja, H. L. (2012). Modern Economics. 17th Edition. S. Chand and Company PVT LTD New Delhi

Akano, A. I. , and Kazeem, H. S. (2015). To what extent does bank credit stimulate economic growth? Evidence from Nigeria” JORIND 13(1) ISBN 1596-8303. www.transcampas.org/journal

Aurangzeb. (2012). Contributions of Banking Sector in Economic Growth: A Case of Pakistan. Economics and Finance Review, 2(6), 45-54.

Aurangzeb. (2012). Contributions of Banking Sector in Economic Growth: A Case of Pakistan. Economics and Finance Review, 2(6), 45-54.

Bakare, I. A., Isaac, A. A., & Samuel, K. H. (2015). To What Extent Does Banks’ Credit Stimulate Economic Growth? Evidence From Nigeria. JORIND, 13(1), 128-139.

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