Bank Credit and Industrial Sector Growth in Nigeria: An Empirical Analysis

Ubong Edem  Effiong; Christopher Nyong  Ekong

Ubong Edem Effiong Department of Economics, University of Uyo, P.M.B. 1017, Uyo, Akwa Ibom State, Nigeria
Christopher Nyong Ekong Department of Economics, University of Uyo, P.M.B. 1017, Uyo, Akwa Ibom State, Nigeria

Keywords: Bank credit, Industrial performance, Finance-led growth, ARDL, Nigeria

Abstract

This paper employed an econometric approach to examine the influence of bank credit on industrial sector performance of the Nigerian economy for the period 1981 to 2018. Data were obtained from the Central Bank of Nigeria statistical bulletin, and were subjected to diagnostic test before being used. The Phillip-Peron unit root test revealed that the variables were in mixed order of I(0) and I(1) thus necessitating the use of the ARDL technique of estimation. In testing for the existence of long-run relationship, the ARDL Bounds test was used in the analysis. The result of the Bounds test indicated the presence of long-run relationship between industrial sector performance and the explanatory variables in the model. The result from the ARDL short-run-dynamics and long-run form indicated that bank credit exerted a positive and significant influence on industrial sector performance both in the short-run and in the long-run. Lending rate was also seen to exert a negative, though insignificant, impact on the industrial sector performance. The coefficient of the ECM (-0.6434) indicated that 64.34% of the short-run disequilibrium is corrected annually. In line with these findings, the paper recommended that there is need for a downward revision of the lending rate to encourage borrowing by investors in the industrial sector and that effective credit rationing should be initiated in favour of the industrial sector.

References

1. Akinola, A. O., Efuntade, O. O., and Efuntade, A. O. (2020). Banks Financing and Industrial Sector Performance in Nigeria. International Journal of Accounting, Finance and Risk Management, 5(3), 157 – 166.
2. Andabai, P. W., and Eze, G. P. (2018). Bank credit and manufacturing sector growth in Nigeria: A causality investigation. International Journal of Economics, Commerce and Management, 6(3), 326.
3. Bada, O. T. (2017). The effect of banks' credits on the development of Manufacturing and agricultural sectors of Nigeria's economy. International Journal of Advanced Studies in Economics and Public Sector Management, 5(1), 114 – 130.
4. Bencivenga, V., and Smith, B. (1991). Financial intermediation and endogenous growth. The Review of Economic Studies, 58, pp. 195 –209.
5. Becsi, Z., and Wang, P. (1997). Financial development and growth. Economic Review- Federal Reserve Bank of Atlanta, 82(4), 46 – 62.
6. Boyd, J. H., and Smith, B. D. (1997). Capital market Imperfections, international credit markets, and nonconvergence. Journal of Economic Theory, 73, 335 – 64.
7. Central Bank of Nigeria (2018). Statistical Bulletin.
8. Dewatripont, M., Rochet, J. C., and Tirole, J. (2010). Balancing the banks: Global lessons from the financial crisis. Princeton: Princeton University Press.
9. Ebele, E. J., and Iorember, P. T. (2016). Commercial bank credit and manufacturing sector output in Nigeria. Journal of Economics and Sustainable Development, 7(16), 189 – 196.
10. Ebi, B.O., and, Emmanuel, N. (2014). Commercial bank credits and industrial subsector’s growth in Nigeria. Journal of Economics and Sustainable Development 5(9), 14 – 27.
11. Eburajolo, C. O., and Aisien, L. N. (2019). Impact of commercial banks’ credit to the real sector on economic growth in Nigeria. Oradea Journal of Business and Economics, IV(1), 38 – 46.
12. Elijah, S. (2018). An empirical analysis of the impact of bank credit on the manufacturing sector output in Nigeria (1986-2016). Journal of Economics Library, 5(4), 371 – 382.
13. Gokmenoglu, K. K., Amin, M. Y., and Taspinar, N. (2015). The relationship among international trade, financial development and economic growth: The case of Pakistan. Procedia Economics and Finance, 25, 489 – 496.
14. Goldsmith, R. W. (1969). Financial structure and development. New Haven, CT: Yale University Press.
15. Greenwood, J., and Jovanovic, B. (1990). Financial development, growth and income distribution. Journal of Political Economy, 98, 1076 – 1107.
16. Iganiga, B.O. (2019). Financial sector development and the quest for industrialization
17. in Nigeria: A multivariate analysis. The Nigerian Journal of Economic and Social Studies, 61(1), 23 – 47.
18. Imoughele, L. E., and Mohameed, I. (2013). Commercial bank credit accessibility and sectorial output performance in a deregulated financial market: Empirical evidence from Nigeria. Journal of Finance and Bank Management, 1(2), 36 – 59.
19. Jhingan, M. L. (2011). Monetary Economics. Seventh Edition. New Delhi, India: Vrinda Publications (P) Ltd.
20. Kalu, E. U., Alice, C. O., Chioma, D. O., Augustina, O. N., and Chinwe, O. (2017). The relative impact of bank credit on manufacturing sector in Nigeria. International Journal of Economics and Financial Issues, 7(2), 196 – 201.
21. King, R. G., and Levine, R. (1993). Finance and growth: Schumpeter Might be right. Quarterly Journal of Economics, 108, 717 – 37.
22. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35, 688 – 726.
23. Mesagan, E., Olunkwa, N., and Yusuf, I. (2018). Financial development and manufacturing performance: The Nigerian case. Studies in Business and Economics, 13(1), 97 – 111.
24. Nwogo, J. E., and Orji, J. O. (2019). Impact of Industrialization on Economic Growth
25. in Nigeria. IOSR Journal of Economics and Finance (IOSR-JEF), 10(5), 42 – 53.
26. Ogar, A., Nkamere, S. E., and Effiong, C. (2014). Commercial bank credit and its contributions on manufacturing sector in Nigeria. European Scientific Journal, 8(3), 19 – 36.
27. Oluwafemi, O., Enisan, A. A. and Elumilade, D. O. (2014). Impact of bank credit on the real sector: Evidence from Nigeria. Global Journal of Business Research, 8(3), 39 – 47.
28. Sogules, I. W., and Nkoro, E. (2016). The impact of bank credits to agricultural and manufacturing sectors on economic Growth in Nigeria. International Journal of Economics and Financial Research, 2(4), 74 – 78.
29. Svilokos, T., Vojinić, P. and Tolić, M. S. (2019). The role of the financial sector in the
30. process of industrialisation in Central and Eastern European countries. Economic Research – Ekonomska Istraživanja, 32(1), 384-402. DOI: 10.1080/1331677X.2018.1523739
31. Tawose, J. O. B. (2012). Bank credit and the manufacturing sector. Journal of International Business and Management, 4(2), 158 – 168.
32. Tomola, M. O., Adebisi, T. E., and Olawale, F. K. (2011). Bank lending, economic growth and the performance of the manufacturing sector in Nigeria. European Scientific Journal, 8(3), 19 – 36.