Does Bank Credit Have Any Impact on Nigeria's Domestic Investment?

Abstract

There is an extensive literature on the role of the bank lending and credit facilities in Nigeria but most of these literature concentrate on its impact on the gross domestic product. This study focuses on the impact of Nigeria’s banking sector on domestic investment from 1980 to 2012 bearing in mind that funding is one of the major challenges of domestic entrepreneurs in Nigeria. A domestic investment model was adopted and the unit root test was first applied to the data set. All the data are stationary and the ordinary least square method was used to identify the impact of capital market activities on domestic investment in Nigeria using the cointegration technique. Findings reveal that bank credit negatively though significantly impacted on domestic investment in the long run while its short run impact is both positive and significant. This is an indication that financial intermediation (captured by bank credit to private sector) is a strong driver of domestic investment in Nigeria only in the short run. The study thus recommends amongst others, the strengthening of Nigeria’s banking system with more funds and supervisions as well as the encouragement of both foreign and domestic investments through government’s creation of a more conducive political and economic climate.

Keywords: bank credits, domestic investment, private sector, small and medium scale enterprises