Deposit Money Banks’ Credit and Investment Drive of Developing Economies: Empirical Evidence from Nigeria

Abstract

The study analyzed the impact of the Deposit Money banks’ credit on investment in Nigeria. Time series data for thirty one year period 1981 to 2012 were collated from secondary sources of the central Bank of Nigeria (CBN) statistical bulletin and was analyzed through Ordinary Least Squares (OLS) regression technique with the aid of E-view to test the hypotheses formulated in line with the objectives of the study while the unit root, Variance Inflation Factor (VIF) and Heterosckedasticity white Test were used for data stationarity and diagnosis. In order to achieve the objective of this study, Deposit Money banks credit to the private sector (DMBC) and the Lending Rate of the Nigeria economy are used as explanatory variables while investment (INV) is the dependent variable. The empirical results of this study shows that both total Deposit Money banks credit and Interest rate exert a positive and significant impact on investment in Nigeria. However the result of the interest rate is at variance with the a priori expectation. Considering the empirical results, the study conclude that Deposit Money Banks’ credit to the private sector should be sustained as it is a viable source of finance to the private sector of the of the Nigerian economy. The study therefore recommended that greater efforts should be made to make available more medium and long term loans to the productive sectors such as the manufacturing sector, agricultural sector and SMEs as they constitute an integral growth process. Also Interest rate on credit facility granted to private sector should be significantly reduced.