The Relative Impact of Domestic Credit to the Private and Public Sectors on Economic Growth in Nigeria

Abstract

Despite the adoption of multiple policy measures aimed at promoting credit growth, the Nigerian economy has failed to experience remarkable progress. The financial sector continues to face challenges such as insufficient long-term funding, liquidity mismatch, inefficiencies in fund allocation, inadequate domestic credit to investors, among others that hinder its growth. To address this gap, this study aims to investigate the relative contributions of domestic credit to the private and public sectors to economic growth in Nigeria from 1981 – 2020. The study employs descriptive and inferential statistical techniques, including stationary tests, lag selection criteria, and an Auto-regressive Distributed Lag bound model to capture the short- and long-run relationships among the variables. The findings indicate that credit to the private sector contributes significantly to economic growth, while credit to the public sector has an insignificant impact. The study recommends that the government must avoid a one-size-fit-for-all policy in promoting domestic credit in Nigeria. Rather, domestic credit policy should be sector specific. There is a need for increased synergy of public and private sector collaboration as well. Effective risk management practices should be introduced to monitor credits, especially those to the public sector, to improve the impact of domestic credit on economic growth.

Keywords: Domestic Credit (to public and private sectors), Economic Growth, Autoregressive Distributed Lag (ARDL)