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. 10 NO. 10 2024
DOI: 10.56201/ijbfr.v10.no10.2024.pg1.17

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Interest Rate and Industrial Development Nexus in Nigeria: A Co- Integration Approach

Ezedike Gregory Onyekachi (Ph.D) and Mbaeri Chibueze Charles (Ph.D)

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Abstract

The study examined Interest Rate and Industrial Sector Development nexus in Nigeria for 36 years period. The model of the study regressed Interest Rate (IR) along with other influential variables as Bank Credit to industrial sector (BCIND), Exchange Rate (EXR), and Gross Fixed Capital Formation (GFCF) on Industrial Sector Gross Domestic Product (GDPIND). Data were collected from the 2021 Central Bank of Nigeria (CBN) Statistical Bulletin covering 1985 to 2021. It used Augmented Dickey Fuller (ADF) test of stationarity, Johansen co-integration and Gauss-Newton / Marquardt steps least squares analytical techniques. The findings satisfied all the variables stationary at 1(1) and the model (R2 adjusted) 99.47% good fit. Long run relationship was found between interest rate and industrial development in Nigeria. IR, BCIND, and GFCF had positive impact while EXR made inverse contribution. The impact of IR and EXR were insignificant while BCIND and GFCF were significant. It found also that disequilibrium in the short run had 5.85% speed of convergence to equilibrium in the long run annually. The study concluded that interest rate and industrial development in Nigeria are co-integrated and interest rate has insignificant positive relationship on industrial development. It therefore recommended that, the Monetary Policy Committee proffer a moderate rate of interest (MPR) that will be good enough to simultaneously mobilise more funds and permit the industrial sector access to the funds; as well as policy measures that will grow gross fixed capital formation and bank credit to the industrial sector and reduce exchange rate.

keywords:

Interest Rate Industrial Development Relationship Nigeria

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