Empirical Investigation on the Relationship between Bank Credit and Manufacturing Sector Growth in Nigeria, 1981-2014
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The study examined the empirical relationship between bank credit and manufacturing sector growth in Nigeria for the period of 34 years, 1981-2014. The study adopted time series data obtained from Central Bank of Nigeria Statistical Bulletin. Five variables were employed for this study. These are manufacturing Sector Output proxied for manufacturing Sector Growth as the dependent variable; whereas, Broad Money Supply, Credit to the Private Sector, Interest Rate and Inflation Rate as the explanatory variables. Augmented Dickey-Fuller and Philips-Perron tests were used to establish the stationarity of the data; and, it revealed that all the variables of the study are stationary at first difference. Johansen co-integration tests were conducted to establish the long-run relationship among the variables. It showed the existence of at least one co-integrating relationship at 5% level of significance. Vector Error Correction Model (VECM) tests were carried out to investigate the dynamic behaviour of the variables. The study revealed that bank credit has no short-run equilibrium significant relationship with manufacturing sector growth in Nigeria. Granger causality tests were employed to determine the direction of the causality. The result indicated that bank credit has no causal relationship with manufacturing sector growth in Nigeria. The study concluded that bank credit had not significantly contributed to manufacturing sector growth in Nigeria. The study recommended that for the economy to grow, the manufacturing sector should be encouraged in form of concessional and reduced interest rate. The study suggested that regulatory authorities should stabilize the interest rate which is capable of ensuring price stability and maintaining inflation to a single digit. This may build confidence in the banking institutions and will enable them to introduce innovations to boost manufacturing sector output in the economy. CBN and policy makers should adopt vibrant economic policies such as interest rate stability, flexible exchange rate, indigenization and economic diversification which will encourage the banks in financing the manufacturing sector.
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