Re-appraising the effect of the banking sector on the Nigerian economy

Damisah, Osikwemhe and Ekor, Maxwell (2019): Re-appraising the effect of the banking sector on the Nigerian economy. Published in: International Journal of Economics, Commerce and Management , Vol. 8, No. 12 (2019): pp. 852-863.

Abstract

The banking sector remains pivotal to Nigeria’s quest for sustainable economic growth and development. Using quarterly data between 2001 and 2018, and applying the Johansen Cointegration and Vector Autoregression techniques, the evidence shows that long-run equilibrium relationship exist among Gross Domestic Product (GDP), Credit to the Economy (CRD), All Share Index (ASI) and the Monetary Policy Rate (MPR). The response of GDP to shock to CRD was initially flat but turned negative for some periods, before becoming positive. On the contrary, the response of GDP to shock to the ASI was initially positive, and then became negative from the third period, and remained so for a longer period when compared with the response of GDP to CRD. It however turned positive at the final stage. This evidence supports the view that economic growth can be achieved faster through the banking sector when compared with the stock market which is an avenue for sourcing long-term funds. The response of GDP to shock to the MPR was also flat originally and then became negative for the rest of the period, confirming the interest rate stance of the Central Bank of Nigeria which has been more of a restrictive posture. The variance decomposition analysis indicates that GDP accounts largely for its own variation, meaning that it is highly endogenous.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit, All Share Index, Impulse-Response, Variance Decomposition
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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