Private Sector Creditand Economic Growth Nexus in Nigeria: An Autoregressive Distributed Lag Bound Approach

Abstract

This paper analyses the relationship between private sector credit and economic growth in Nigeria, using time series data for
the period of thirty-seven (37) years (1974-2010). In analyzing the data the paper used Autoregressive Distributed Lag (ARLD)
bound F-test for cointegration. The results indicated that a long run equilibrium relationship exists between private sector
credit and economic growth, when private sector credit was used as dependent variable. However, causality results indicate
that there is no causal relationship between private sector and economic growth in Nigeria. Therefore the empirical findings of
this research implied that while “demand following hypothesis” prevailed in the long run relationship between private sector
credit and economic growth in Nigeria, non-causal impact between private sector and economic growth on the other hand
indicates the prevalence of the Schumpeterian “independent hypothesis” on the Nigerian economy. Finally, the study
recommends long-term investment loan to the productive private sector in addition to the need for comprehensive policies and
strong legal framework for easy disbursement and quick recovery of private sector credit.