Banking Intermediation and Private Real Investment: A Time Series Evidence from Nigeria

Abstract

This study examined the effect of banking intermediation on private real investment in Nigeria from 1990-2022. The objective was to investigate the effect of banking intermediation indicators on private real investment in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical bulletin and publications of Nigeria Bureau of Statistics. Private real investment was proxy for dependent variables while banking sector credit, banking sector deposit, financial sector deepening and cost of financial intermediation were proxy for independent variables. Ordinary least square methods of cointegration, unit root test and Vector error correction model was used. The variable was stationary at first difference and there was presence of long run effect from the cointegration test. The study found that 75.9% and 68.1% variations in the dependent variable could be trace to variation in the model; this was justified by the f statistics and the probability value. The result indicated that the variables adjust by 38 percent annually. Base on the validity of lag I, the study found that banking sector credit have positive but no significant effect on private real investment such that a unit increase increased private real investment by 0.004 percent, banking sector deposits have positive and significant effect on private real investment such that a unit increase increased private real investment by 0.46 percent, financial deepening have positive but no significant effect on private real investment such that a unit increase increased private real investment by 0.01 percent cost of financial intermediation have negative and no significant effect on private real investment such that a unit increase reduced private real investment by 0.06 percent. The study recommended among others that Nigeria interest rate such as lending interest rate should be properly factored into the macroecon

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