EuroEconomica, Vol 38, No 1 (2019)

Abstract

This study investigated the nexus between deposit money banks’ credit to private-public sectors and economic development in Nigeria between the 1970 to 2016 periods. The study adopted per capital income as the dependent variable, while credits to private sectors, credits to government sectors, money supply, and lending interest rate are the independent variables. It employed the Ng-Perron, Augmented Dickey Fuller Breakpoint Unit Root Tests and Toda-Yamamoto augmented Granger causality test in its analysis. The unit root tests were employed to check for the presence of unit root and determine the order of integration of the series– I(d) in the presence of structural break in each series respectively. Hence, taking account of the effect of structural break, credits to government sectors and lending interest rates were stationary series at p < 0.01. The T-Y Granger causality results, in its overall sense provided evidence to support the feedback hypothesis in Nigeria. The feedback hypothesis holds that banks’ credit and economic development granger cause each other. It was recommended, among other things, that the monetary authorities should regulate the activities of deposit money banks to ensure that they gear up the growth of credits to private sectors by examining factors, such as lending interest rate which can possibly undermine lending to the private sectors, that serves as key engine of economic development in any developing economy.