Banking Sector Development And Capital Formation In Nigeria: A Multivariate Analysis
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This study is formulated to examine the effect of banking sector development on Nigerian capital formation. The objective is to investigate the extent to which various banking sector reforms affect Nigerian capital formation. Time series data was collected from the publications of Central Bank of Nigeria statistical bulletin from 1980-2014. The study has Nigerian Capital Formation (CF) as the function of Percentage of Bank credit to Gross Domestic Product (BC_GDP), Percentage of Bank investment to Gross Domestic Product (BI_GDP), Percentage of Bank deposit to Gross Domestic Product (BD_GDP), Percentage of Bank Total Assets to Gross Domestic Product (BTA_GDP) and Prime Lending Rate (PLR). The study used the Ordinary Least Square (OLS) Method of cointegration test, Augmented Dickey Fuller Unit Root Test, Granger causality test in a Vector Error Correction Model setting to examine the relationship between the dependant and the independent variables. The study revealed that in the static regression result that all the independent variables have positive relationship with the dependent variable except prime lending rate. The Unit Root Test shows that the variables are non stationary at level but stationary at difference. The cointergration result indicates long run relationship between the dependent and the independent variables. The granger causality test shows multivariate relationship running from the independent variables to the dependent variable and from the dependent variable to the independent variables while the vector error correction result shows adequate speed of adjustment to equilibrium. The study conclude that banking sector development have significant effect on Nigerian capital formation. The study recommends that the Nigerian banking sector should further be reformed and its operational efficiency deepened to enhance capital formation in Nigeria.
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