Sectorial Credit Allocation, Bank Rural Operations and Economic Growth: A multi-Dimensional Study from Nigeria
Vol.4 Issue 2
This study examined the effect of sectoral credit allocation, bank rural operations on economic growth in Nigeria from 1981-2018. The objective was to investigate the effect of banking intermediation indicators on economic growth in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical bulletin and publications of Nigeria Bureau of Statistics. Real gross domestic products were proxy for dependent variables while the independent variables, credit to productive sector, general commerce, Service sector, other sector, deposit of rural branches of commercial banks, loans of rural branches of commercial banks, Central Bank Loans to Small scale Enterprises. Ordinary least square methods of cointegration, granger causality test, unit root test and Vector error correction model. The coefficient of determination (R2) shows that 87 percent of variation in Nigeria real gross domestic products is caused by variations in sectorial credit allocation. The coefficient of credit to service sector in the estimated regression line is 2.625972 which imply that a unit increase in credit to service sector will increase Nigerian real gross domestic products by 2.6 percent. The coefficient of credit to productive sector in the estimated regression line is 11.03827 which imply that a unit increase in credit to productive sector will increase Nigerian real gross domestic products by 11 percent. 45 percent of variation in Nigeria real gross domestic products is caused by variations in bank rural operation while the remaining 55 percent of the variation in the model is captured by the error term. The coefficient of deposit to rural branches in the estimated regression line is 0.029009 which imply that a unit increase in deposit to rural branches will increase Nigerian real gross domestic products by 0.03 percent while the coefficient of Central Bank loans to small and medium enterprises in the estimated regression line is -668.0875 which imply that a unit increase in credit to Central Bank loans to small and medium enterprises will reduce Nigerian real gross domestic products by 668 percent. We recommend that Central Banks of Nigeria should re-introduce the rural banking scheme; this will enhance deposit mobilization and credit allocation from the rural communities. There is need to re-introduce mandatory sectorial credit allocation, this will enable commercial bank to extend credit facilities to the preferred sectors of the economy such as the manufacturing, agricultural and service sector.
