Credit Market and Economic Development in Nigeria

Abstract

A developed and efficient credit market encourages savings, allocative efficiency of investible funds and promotion of capital accumulation. Countries with deeper credit market face less severe business cycle, output contraction and lower chances of an economic downturn. This will directly or indirectly boost private investment behavior in the economy. However, in Nigeria the objective of improving the level of economic development through the credit market is yet to be achieved. This may be attributed to inability of the investors to channel credit market investible funds to projects that are productive. This study therefore, examines the relationship between credit market and economic development in Nigeria using data between 1970 and 2012. A standard econometric method of error correction mechanism was adopted. Though the result shows a direct and positive relationship credit market and economic development in Nigeria, the effect of the return on investment to economic development is adverse against the Keynesian theory of investment. It is therefore, recommended that investible funds from the credit market should be restricted to viable investments.