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Banking Sector Development and Real Sector Performance in Nigeria

Wali, Chioma Miracle, Nyeche, Ezebunwo , Akidi Victor

Abstract

This study examines the effect of banking sector development on real sector performance in Nigeria from 1990–2024 using bank asset depth, domestic credit depth, interest rate spread, and broad money supply depth as proxies for banking sector development, while industrial sector value-added represented real sector performance. Data were sourced from the World Bank and IMF databases. The study employed the Augmented Dickey-Fuller unit root test, bounds cointegration test, ARDL estimation technique, Granger causality test, and post- estimation tests. The findings revealed that a long-run relationship exists between banking sector development and industrial sector performance. Bank asset depth exerted a significant negative long-run effect on industrial sector value-added, while domestic credit depth and broad money supply showed no statistically significant long-run effects. Interest rate spread negatively affected the industrial sector in the short run. The Granger causality results indicated limited causal relationships between banking sector indicators and industrial sector value-added. The study concludes that banking sector development in Nigeria has not sufficiently translated into substantial improvements in real sector productivity, especially in industry. The study recommends among others that the Nigerian government should strengthen targeted credit allocation to industry to ensure that banking sector funds are directed toward productive investments capable of increasing sectoral value-added and economic growth.

Keywords

Banking Sector DevelopmentReal Sector PerformanceIndustrial Sector Value- AddedInterest Rate Spread.

References

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