Deposit Money Banks’ Credit to Private-Public Sectors and Economic Development Nexus: Nigeria in Focus

Abstract

We scrutinized deposit money banks’ credit to private-public sectors and its nexus with economic development in Nigeria over the period 1970-2016. This study adopt per capital income as the proxy for economic development, while credits to private sectors, credits to government sectors, money supply, and lending interest rate were the financial deepening variables. We employed the Ng-Perron and Augmented Dickey Fuller Breakpoint Unit Root Tests in checking the presence of unit root, and in determining the order of integration of the variables– I(d) in the presence of structural break for each variables respectively, while the T-Y augmented Granger causality test is used to reveal how causal effects flow in this study. Hence, taking account of the effect of structural breaks, we found that bank credits to government sectors and lending interest rates were stationary series as p < 0.01. We also found from the T-Y Granger causality results in its overall sense that the feedback hypothesis by contrast to prior studies holds in the Nigerian context. The feedback hypothesis establish that banks’ credit and economic development granger cause each other. In this paper, we recommended among other things that the monetary authorities should regulate the activities of deposit money banks to ensure that they gear up the growth of credits to private sectors by examining factors, such as lending interest rate which can possibly undermine lending to these sectors; considering their role as key engine of economic development in any developing economy