Effect of abnormal increase in credit supply on economic growth in Nigeria

Ozili, Peterson K and Oladipo, Olajide and Iorember, Paul (2023): Effect of abnormal increase in credit supply on economic growth in Nigeria. Published in:

Abstract

We investigate the effect of abnormal increase in credit supply on economic growth in Nigeria after controlling for the quality of the legal system, size of central bank asset, banking sector cost efficiency and bank insolvency risk. The abnormal increase in credit supply has a significant effect on economic growth. The abnormal increase in credit supply increases real GDP growth. The abnormal increase in credit supply decreases real GDP per capita during the global financial crisis. The abnormal increase in domestic credit to private sector has a significant positive effect on GDP per capita when there is strong legal system quality in Nigeria. In contrast, the abnormal increase in domestic credit to private sector has a significant negative effect on real GDP growth when there is strong legal system quality in Nigeria. The abnormal increase in credit supply is ineffective in increasing GDP per capita during crisis years. Policymakers should be cautious in pressuring financial institutions to release an abnormally large amount of credit into the economy particularly during financial crises. Rather, policymakers should encourage financial institutions to supply credit in a sustained manner – not in an abnormal manner – and in a way that supports growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth, Nigeria, credit supply, GDP growth rate, GDP per capita, abnormal credit supply, rule of law, ZSCORE, profitability, domestic credit to private sector, central bank asset.
• 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; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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