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IMPACT OF SECTORAL ALLOCATION OF BANKS' CREDIT ON ECONOMIC GROWTH IN NIGERIA

Stephen Alaba John and Rodiat Yetunde Lawal
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Stephen Alaba John: University of Ilorin, Postal: Department of Finance, Faculty of Management Sciences, Ilorin, Nigeria.
Rodiat Yetunde Lawal: University of Ilorin, Postal: Department of Finance, Faculty of Management Sciences, Ilorin, Nigeria.

International Journal of Accounting and Finance (IJAF), 2019, vol. 08, issue 2, 96-113

Abstract: Sectoralallocation ofcreditis a vitalfunction ofthe banking sectoras itenhances economic growth and development. However, contributions ofcredits byBanks to various sectors in Nigeria are notsufficient to the growth ofthe Nigerian economy in spite ofthe various reforms and development in the banking sector. Hence, this study examines the impact of sectoral allocation of banks' credit on economic growth in Nigeria. The study uses annual time series data obtained from the Central bank of Nigeria (CBN) statistical bulletins and National Bureau ofStatistics (NBS) annual reports covering the period of thirty years (1986-2015). The data were analysed using Augmented Dickey Fuller (ADF) unit root test, Johansen co-integration test, vector error correction model (VECM) and fully modified Ordinary Least Square (FMOLS) regression. The findings ofthis study reveal that a long-run relationship exists between economic growth and the explanatory variables. The results ofthe regression revealed that credit allocated to productive sector and broad money supply have a significant positive influence on economic growth in Nigeria at 1% level of significance, while credit allocated to general commerce, credit allocated to service sector and credit allocated to other sectors have a negatively significant effect on economic growth in Nigeria at 1% level of significance. Based on these findings, the study concludes that sectoral allocation of banks' credit has a significant impact on economic growth in Nigeria. Therefore, the study recommends that policy makers such as the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), amongst others should fashion out appropriate policies through the establishment of infrastructures that will enhance the bidirectional flow between the banking sectors from where investible funds are sourced, and the priority sectors where goods and services are produced.

Keywords: Deposit money banks; Economic growth; Sectoral allocation credit; CBN (search for similar items in EconPapers)
Date: 2019
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