Bank Lending Rate and Economic Growth: Evidence from Nigeria

The relationship between bank lending rate and economic growth has generated intense debate and findings have been inconclusive. More so, bank lending rate has constituted serious limitation to the attainment of sustainable development and economic growth of the developing countries, Nigeria’s inclusive. Hence, the need for further investigation becomes imperative. This study examined the relationship between bank lending and economic growth in Nigeria between 1980 and 2016. Data sourced from the various issues of Central Bank of Nigeria Statistical Bulletin was analyzed through Dynamic Ordinary Least estimation technique. Data treatment was done through stationarity and cointegration tests. The unit root test showed that the variables were integrated at order on I(0) except rate of bank lending, inflation and real exchange were integrated at order on 1(1). The result of cointegrated showed a long run relationship among the variables. The Results proved that a unit percent decrease in bank lending rate will bring about 118% increase in economic growth. Furthermore, the findings of Greenwood and Jovanovic Hypothesis established that as bank lending rate decreased, economic growth tend to increase and it is statistically significant at 1% level. The study concluded that a decreased in bank lending rate increased economic growth during the study period. Therefore, policy that will reduced bank lending rate should be put in place so as to boost economic growth in Nigeria.