Causality Modelling of the Banking Sector Credits and Economic Growth in Nigeria
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,
Keywords
Banking Sector creditsEconomic GrowthPairwise Granger Causality.
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