IMPACT OF BANK CREDIT ON THE MANUFACTURING SECTOR IN NIGERIA

Abstract

This study assess the effect of credit on the manufacturing sector and its impact on output growth in Nigeria from 1995-2020. The study relies mainly on secondary data. This study adopts both descriptive and inferential statistical methods in the data analysis. The OLS estimation test results show that all the explanatory variables are correctly signed according to the a priori expectation. Maximum lending rate, exchange rate and inflation are negatively signed, as expected, although insignificant. For bank credit,
results establish a negative relationship between maximum lending rate and bank credit, implying that a decline in lending rate will lead to an increase in bank credit, as economic agents take advantage of the lower cost of funds.. For the Johansen test, findings show the existence of a unique and stable long-run relationship between growth of the manufacturing sector and interest rate, exchange rate, unemployment, inflation, real GDP and credit to the private sector. The results also established a long-run relationship between bank credit and manufacturing sector performance, interest rate, exchange rate, unemployment rate, inflation rate and real gross domestic product. However, the null hypothesis of no Granger causality was accepted for MLR, LNBDC, LNGDP and LNCREDIT. For the Granger causality tests collectively, the combination of all the variables were found to Granger-cause manufacturing sector growth at the 10 per cent level of significance. The Granger causality test on revealed bidirectional causality between real GDP and bank credit. This implies that the level of domestic output in Nigeria determines the level of bank credit and vice versa. The null hypothesis of no causality was accepted for MO, MLR, LNBDC, UNEM and INF as they collectively did not Granger-cause bank credit. The findings of this study have implications that are important for policy makers, investors and researchers on how to improve the performance of the manufacturing sector.