An Econometric Analysis of Sectoral Distribution of Deposit Money Banks Credits and Economic Growth in Nigeria

Abstract

This paper explored the nexus between sectoral credit distribution and economic growth in Nigeria from 1981 to 2020 by examining the effect of  deposit money banks credits to the agricultural, industrial and service sectors on real gross domestic product (GDP). In doing this, the study  accounted for the role of financial development and adopted the unit roots, cointegration and Toda and Yamamoto granger non-causality  techniques. The result of the Engle and Granger cointegration test reveals no long run equilibrium relationship between deposit money banks credit  to agricultural sector, industrial sector, service sector, financial development and real GDP. The result of the causality test reveals that  demand-led hypothesis holds in Nigeria as unidirectional causality was found running from real GDP to financial development. Also, the study found  bi-directional causality between credit to agricultural sector and industrial sector. Results show unidirectional causality from financial  development to deposit money banks’ credit to the service sector. The work recommends that the Central Bank of Nigeria (CBN) should set up a real  sector credit scheme and ensure that commercial banks disburse credit facilities at an interest rate in the region of 7 – 14 percent.