Private Vs Public Sector Bank Credits And Economic Growth Nexus In Nigeria: Where Does Efficacy Rest?

Abstract

Demetriades and Hussien (1996), Levine and Zervous (1998) as well as Crowley (2008) argue that bank credits allocated to the private sector of an economy are more productive than those allocated to the public sector because they are disbursed under more stringent credit conditions. This study basically, attempts to evaluate the comparative efficacies of bank credits allocated to the private and public sectors of Nigeria’s economy in relation to economic growth. The Augmented Dickey Fuller (ADF), Johansen’s cointegration, error correction model and the standard pair-wise Granger Causality tests were employed in processing data sourced from Central Bank of Nigeria’s Statistical Bulletin over the period 1981 to 2011. The results reveal a significant long run relationship between credits allocated to the public and private sectors of the economy and Nigeria’s gross domestic product. The Granger Causality tests indicate significant bi-directional causality only between credits to private and government sectors. Significant unidirectional causalities are observed between gross domestic product and credits to both private and public sectors with causality flowing from GDP to those economic sectors. The study concludes that irrespective of the prevailing long run relationship between Nigeria’s economic growth and bank credits to the private and public sectors of the economy;(i) Nigerian banks largely play demand-following roles, (ii) None of the bank credits to the government and private sectors is efficient as they two largely fail to promote the economy. Measures including creation of more capital market debt products, which will enable the government source more long term development funds and reduce pressure on operating banks, as well as replication of this study in other economic settings to facilitate understanding of country specifics are recommended for implementation. Keywords: Public Sector Credit, Private Sector Credit, Economic Growth,  Efficacy