IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
Vol. 1 No.8 2015

---

Causality Modelling of the Banking Sector Credits and Economic Growth in Nigeria

Iwedi Marshal, Okey-Nwala Precious Onyinye & Wachukwu Iheanacho Princewill

---

Abstract

This article examines the direction of causality between banking sector credit and economic growth in Nigeria over the period 1980-2013. The causal links between the pairs of variable of interest were established using pairwise Grangers causality test. The granger causality test results reveal that there exist unidirectional causality flowing from Gross domestic product to CPS and CGS. Bi-directional causality runs between Contingent Liability and GDP. These suggest that growth in the volume of contingent liabilities could boost investment in the economy and exert a positive impact on level of productivity hence having a contagion effect on the output level of goods and services in the economy. In the opposite direction, growth in GDP can also boost the total amount of new funds needed through the window of investment, productivity, inventions, innovation and diversification, thereby giving birth to the issue of new credits to fund new businesses and the expansion of already existing once in the economy. This study recommends that the managers of the Nigeria economy should fashion out appropriate policies that will enhance the bi-directional flow of influence between the banking sector where investable funds are sourced and the real sector of the economy where goods and services are produced,

Banking Sector credits, Economic Growth, Pairwise Granger Causality.

---

References:

Adekanye F. (1986). Elements of Banking in Nigeria. Lagos: F. & A Publishers.

Ademu, W.A. (2006) “The Informal Sector and Employment Generation in Nigeria: The
Role of Credit” Employment Generation in Nigeria. Selected papers for the 2006
Annual Conference of the Nigeria Economic Society, in Calabar, August 22nd to 24th.

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

Barro, R.J. (1999). “Economic Growth in a Cross Sector of Countries”, The Quarterly
Journal of Economics. MIT Press 106(2): 407-43.

Barro, Robert J. (1991) “Economic Growth in a Cross section of Countries”. The Quarterly
Journal of Economics, MIT Press, 106(2): 407-43.

Bayraktar, Nihal& Wang, Yan (2006) “Banking sector Openness and Economic Growth,”
Policy Research Working Paper Series 4019, the World Bank.

Beck, T. Demirguc-Kunt A. & Levine R. (2005). Bank Supervision and Corruption in
Lending NBER Working paper No 11498.

Blundell R. and Bond S. (1998) “GMM Estimation with Persistent Panel Data: An
Application to Production Function” The Institute for Fiscal Studies Working Paper
Series No W99/4.

Calderon, C and Liu, L. (2003) “The Direction of Causality between Financial Development
and Economic Growth” Journal of Development Economics.

Central Bank of Nigeria (2007). Annual Report Abuja Research Department.

Central Bank of Nigeria (2011). Annual Report Abuja Research Department.

Christopoulos, D. and Tsionas, E. (2004). “Financial Development and Economic Growth:
Evidence from Panel Unit Root and Cointegration Tests.” Journal of Development
Economics 73, 55-74.

Demetriades O.P. and Hussein A.K. (1996)” Does Financial Development cause Economic
Growth? Time Series Evidence from 16 Countries” Journal of Development
Economics 51(2):387-411.

Demetriades, P. and Andrianova, S. (2004)” Finance and Growth: What We Know and What
We Need to Know”. University of Leicester.

Demirguc-Kunt, A and Levine R. (2008) “Finance, Financial Sector Policies and Long Run
Growth” the world Bank Development Research Group, Policy Research Working
Paper 4469.

Diego Romero de Avilla, T (2003). Finance and Growth in the EU: New Evidence from the
Liberalisation and Harmonisation of the Banking Industry” European Central Bank
Working Paper Series No: 266.

Ekpenyong, D.B. &Aecha I.A. (2011) “Banks and Economic Growth in Nigeria” European
Journal of Business and Management ISSN 2222-1905 (paper) ISSN 2222-2839
(Online) 3(4).

Ezirim, C.B. &Emenyonu E.N. (1998). Bank Lending and Credit Administration. A Lenders
Perspective with Problems, Cases and Solution. Markowitz Centre for Research and
Development.

Fase, M.M.G and Abma R.C.N. (2003) “Financial Environment and Economic Growth in
Selected Asian Countries” Journal of Asian Economics, 14:11-21

Favara G. (2003) “An Empirical Reassessment of the Relationship between Finance and
Growth” IMF Working Paper No:03/123.

Greenwood, J and Jovanovic, B. (1990). Financial Development, Growth and the Distribution
of Income. Journal of Political Economy. 98:1076-1107.

Gross, M.D. (2001) “Financial Intermediation: A Contributing Factor to Economic Growth
and Employment”

Gurley, J and Shaw, E. (1967)” financial structure and economic development” Economic
development and cultural change, 5(3):257-268.

Guryay, Erdal; VeliSafakli, Okan; &Tuzel, Behiye (2007), “Financial Development and
Economic Growth: Evidence from Northern Cyprus”, International Research
Journal of Finance and Economics, 8, 57-62.

Habibullah, M.S. and Eng Yoke-Kee (2006) “Does Financial Development cause Economic
Growth? A Panel Data Dynamic Analysis for the Asian Developing Countries”,
Journal of the Asia Pacific Economy. 11(4): 377-393.

Harrison, P., Sussman, O. & Zeira, J. (1999) “Finance and Growth: Theory and New
Evidence” Federal Reserve Board Discussion Paper No 35.

Howitt, Peter (2007) “Innovation, Competition and Growth: A Schumpeterian Perspective on
Canada’s Economy” C.D. Howe Institute Commentary
http://www.cdhowe.org/pdf/commentary_246.pdf.

IMF (2001). Theories of Economic Growth – Neo-Classical. Retrieved on April 19, 2010
from www.google.com.

Iwedi, Marshal and Onuegbu, Onyekachi (2014). Credit Risk and Performance of Selected
Deposit Money Banks in Nigeria: An Empirical Investigation. European Journal of
Humanities and Social Science. 31(1), 1684 -1694.

Iwedi, Marshal, Igbanibo Dumini Solomon and Onuegbu Onyekachi, (2015). Bank Domestic
Credit and Economic Growth in Nigeria. International Journal Finance and
Accounting, 4(5): 236-244. Doi:10.5923/j.ijfa.20150405.02.

Jhingan, M.L. (2006). The Economics of Development and Planning (38th Ed). Delhi: Virnda
Publication (P) Ltd.

King, R.C. & Levine, R. (1993a). “Finance, Entrepreneurship and Growth: Theory and
Evidence”, Journal of Monetary Economics, 32: 513-542.

King, R.C. & Levine, R. (1993b). “Finance and Growth: Schumpeter Might Be Right”
Quarterly Journal of Economics, 108: 717-738

King, R.C. & Levine, R. (1993c). Financial intermediation and economic development, in
financial intermediation in the construction of Europe, Eds: C. Mayer and X.Vives
London: Centre for Economic Policy Research: 156-189.

McKinnon, R. (1973). Money and Capital in Economic Development. Washington: The
Brooking Institute.

Nnanna, O.J. (2004). “Financial Sector Development and Economic Growth in Nigeria: An
Empirical Investigation”. Economic and Financial Review. 42 (3) p. 1-17.

Obilor, S.I. (2013). The Impact of Commercial Banks Credit to Agriculture on Agricultural
Development in Nigeria: An Econometric Analysis: International Journal of
Business, Humanities and Technology 3(1) January 2013.

Ochejele, J.J. (2007). Economic Analysis. Jos: Ichejum Press.

Odedokun, M.O. (1998) “Financial Intermediation and Economic Growth in Developing
Countries” Faculty of Commerce, University of Swaziland, Swaziland.

Okonjo-Iweala N. &Osafo-Kwaako P. (2007): Nigeria’s Economic reforms: Progress and
Challenges. Brooklyn Global Economy and Development.

Olofin, S. &Afangideh, Udoma, J. (2008) Financial Structure and Economic Growth in
Nigeria, Nigerian Journal of Securities and Finance 13(1) 47-68.

Orji, Anthony (2012) Banking Savings and Bank Credits in Nigeria: Determinants and
Impact on Economic Growth: International Journal of Economics and Financial
Issues 2 (3) 357-372.

Rajan, Raguram G. &Zingales, Luigi, (1998). “Financial Dependence and Growth”.
American Economic Review, 88(3): 559-86.
Schumpeter, J.A. (1934). The Theory of Economic Development. Cambridge, Mass: Havard
University Press.

Shaw, E.S. (1973). Financial Deepening in Economic Development. New York: Oxford
University Press.

Spencer, H.M. (1977). Contemporary Macroeconomics (3rd Ed). New York: Worth
Publishers.

Swiston, A. (2008) “A Financial Conditions Index: Putting Credit where Credit is Due” IMF
Working Paper, June.

Uremadu S.O. (2005) “Determinants of Banking System Credit to the Nigerian Economy in a
Liberalized Financial System: An Empirical”, for publication in BIJAR, BUK Kano.

DOWNLOAD PDF

---

Back