IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 4 NO. 4 2018

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Effect of Interest Rate Mechanisms on the Economic Development of Nigeria, 1986 -2016

Richard Osadume, FCIB, Ph.D

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Abstract

This Study examined the Effect of Interest rate mechanism on Economic Development of Nigeria (1986-2016). The objective of this study was to examine the Effects of Discount rates measured by interest rates and monetary policy rates on economic development of Nigeria. The Keynesian liquidity theory, on which this work was anchored believe that interest rate is a function of the demand for and the supply of money; Changes in interest rate will result from changes in supply of money and proportionate change in Economic Development of a country but some available findings from studies appear to disagree with this proposition. The study used secondary data sourced from World Bank, UNDP, Bureau of Statistics and the Central Bank of Nigeria; The research work selected Nigeria as its sample and used the OLS, Co-integration, Granger-causality and Error Correction model data Analysis techniques, to test the Effect of the independent variables (interest rates and Monetary policy rates) on the dependent variable, economic development (proxy by Human Development index) and tested at the 5% level of significance. The findings showed that discount rates represented by interest and monetary policy rates; both had significant effect in the short-run and showed positive and significant effect in the long-run on economic development with significant speed of adjustments. The study concludes that discount rate instruments such as interest and monetary policy rates have significant effect on economic development and recommends amongst others that discount rates should be environment and Business-friendly and predictable in line with prevailing economic dictates and as much as feasible government fiat should be reduced in arriving at monetary rates

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