IMPACT OF DOMESTIC CREDIT ON NIGERIA’S ECONOMIC PERFORMANCE,

1999-2022

SEMINAR II

SUNDAY ATADIOSE
PG/Ph.D/18/88001

DEPARTMENT OF BANKING AND FINANCE

FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS

SEPTEMBER, 2023
 CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Domestic credit is the aggregate financial resources sourced internally via local financial
intermediation and dominated in local currency for macroeconomic activities. It’s a
summation of credit facilities originating from/within a country and utilized therein.
Domestic credit refers to financial resources provided to the private sector by the financial
sector, more than that, domestic credit reflects the financial development of a country (Bui,
2019). These include internal credit or non-foreign financial resources provided to the
aggregate economy, such as loans, purchases of non-equity securities, trade credits and other
accounts receivables, which establish a claim for repayment (World Bank, 2018 in Omodero,
2019). Domestic credit is one of the most critical mechanisms for allocating resources,
individuals borrow domestic credit for consumption and investment purposes, business
organizations borrow to invest in plant, raw materials and machinery and government
borrows loans to mitigate the cyclical pattern of tax revenues and to invest in infrastructure
projects. (Cecchetti & Schoenholtz, 2011 in Begum, Aziz & Sotto, 2018). According to
Pearce (1992) in Odufuye (2017), domestic credits refer to the process of lending and
borrowing of fund within the offshore of a country from financial able bodies such as banks,
government, individuals and other financial institutions. It can also be describe as a means of
obtaining internal financial resources at a certain period of time with an obligation to repay in
accordance with the terms and conditions of the credit obtained.

Domestic credit performs a major role in providing the national capacity for investment and
production, which will affect the potentials of economic growth. In general terms, increasing
aggregate saving contributes to higher investment and this leads to higher economic growth
(GDP) both in the long and short-runs. Domestic credit creates capital formation and leads to
technical innovation and progress this helps with economies of large-scale production and
increase specialization. In order to enhance private sector investment, domestic credit to the
private sector is gaining more importance (Edward, 2018) as it has always been recognized as
a key determinant of economic growth in some earlier studies like one by (Shumpeter, 1911
in Khan Sheraz & Liaqat, 2020). Domestic credit is comprised of loans, overdrafts and
advances to the private sector, and can be categorized as commercial not only channelizes the
domestic saving into productive investment by the private sector but it also improves the
productivity of formal sectors of economy thereby playing an important role in economic
growth (Nzomoi et al., 2012 in Khan Sheraz & Liaqat, 2020). A well established and
functional domestic credit system has proved to be a good alternative source of finance not
only for investment purposes but also for financing the budget discrepancies and for better
implementation of monetary measures (Mbate, 2013 in Khan Sheraz and Liaqat, 2020).
Succinctly, domestic credit refers to availability of resources (money) to household, firms and
government with an agreement to repay at a stipulated period of time without external
funding from abroad or net foreign credit. Pandey, (2006) in Odufuye (2017) opines that
domestic credit term to be granted to any customer depends on the norms and practice of the
domestic industry. Begum and Aziz (2019) posit that bank provided credit to individuals,
business organizations and government. Akpansung and Babalola (2011) emphasized that
prior and after the structural adjustment era, the Central Bank of Nigeria has been seen to be
playing a leading and catalytic role by using direct controls not only to control overall credit
expansion but also to determine the proportion of bank loans and advances going to high
priority sectors and others.

This sectoral distribution of bank credit is often meant to stimulate the productive sectors,
including agriculture, industry and manufacturing, and consequently lead to increased
economic growth in the country. Although credit creation is often perceived as favorable for
economic development and growth, rapid domestic credit expansion stemming from capital
inflows is considered to create destabilizing effects on the economies (Soydan and Bedir-
Kara, 2020). Adekunle and Ayeni (2021), the credit channel through which financial sector
development influenced economic growth emphasizes on the effective allocation of mobilized
financial resources inform of credit to the real and productive sector. The credit channel through
which financial sector development influenced economic growth emphasizes on the effective
allocation of mobilized financial resources inform of credit to the real and productive sector.
Omodero (2019) asserts that finance naturally serves as the livewire of an economy and allows
the private sectors to expand their businesses and implement new ideas. Domestic credit in a
nation has a complex way of affecting the private sector access to credit and operations.
Developing countries often resort to borrowing when the ever-increasing needs in the social
development process cannot be met by the nation’s ordinary public revenues. Borrowing can
also be due to major infrastructure investments, war, development financing, natural
disasters, economic crisis, and budget deficits (Aybarç, 2019) in Akpansung and Gidigbi
(2020). However, domestic credit remains critically important to maintain a higher level of
investment which is a key factor for sustainable economic uplift especially in the emerging
economies. As foreign credits maintain stringent conditions, investment cannot be enlarged
without increasing the domestic credit and because of this domestic credit is considered as a
prerequisite for raising investment, which further leads to economic growth. Modebe et al
(2014) in Orimogunje (2019) opined that the need for domestic credit which is needed for the
growth of an economy is very critical because every economic agent in a society are
contending for resources which are very scarce to the different agents for them to achieve
their goals. To meet with the needs of the agents which may include, the private sector, small
and medium scale enterprises, government and the real sector of the economy. Each of the
aforementioned establishments seeks credit or resource for continuous growth.

1.2 STATEMENT OF PROBLEM

According to Akpansung and Babalola (2011), the central bank of Nigeria noted that the flow
of credit to the priority sectors did not meet the prescribed targets and failed to impact
positively on investment, output and domestic price level. Certainly, these evoked certain
questions bothering on the strength, effectiveness, and productivity of domestic credit in the
Nigerian economy. In general, there still exist many different views on the role of domestic
credit in economic growth as most empirical researchers hardly investigated the nonlinear
relationship between domestic credit and economic growth, thereby determining the optimal
threshold of domestic credit in order to stimulate economic growth (Bui, 2019).
1. There are however no consensus that domestic credit indeed aid economic
performance.
2. Despite the abundance of the theoretical and empirical literature on the domestic
credit economic performance nexus, the empirical foundation of the causal
relationship remains scanty.
3. Most studies focused on one dimension of economic performance indicators
especially growth as signified by GDP without paying credence to economic
development indicators and therefore limited on scope.
4. Scope of existing literature were mainly on regional level and economic blocs,
leaving national economy, especially emerging economies like Nigeria with glaring
knowledge gap.
5. Domestic credit was mostly measured using multiply variables based on sectoral
allocation/distributions, the researcher argue that such studies could produce bias and
misleading results given that multiply proxies and control variables does not
 adequately reflect domestic credit holding other things constant and such findings
may delude policy implementation.
6. Some studies not only failed to incorporate plausible model variables but
overestimated the models with proxies. While, some remains outdated and could no
longer stand the taste of time.

According to Thierry et al. (2016) in Bui (2019), Samad and Masih (2016), the positive
relationship between domestic credit and economic growth has proven by many scholars
around the world. While Pagano and Pica (2012) in Bui (2019) argued that domestic credit is
not always positively correlated with economic growth. It can even exert negative impact on
economic growth (Levine, 2005; Cournède & Denk, 2015). Ayunku (2018) opines that the
relationship between financial development and economic growth has been the subject of
much debate both at theoretical and empirical levels. However, domestic credit-economic
growth nexus and the divergent views on the direction of causality between the two, have
been discussed extensively by early writers (Schumpeter, 1911; Kuznets, 1955; Patrick,
1966) in (Akintola, Oji-Okoro & Itodo, 2020). These divergent views can be grouped into the
“supply-leading” and “demand-following” hypotheses. At the same time, whether or not
financial sector development precedes economic growth or economic growth precedes
financial development is still a debatable topic for both developed and developing countries
(Ayunku, 2018). Bui (2019) opines that the correlation between domestic credit and
economic growth is an interesting research topic that attracts different views from many
scholars. Particularly, most empirical studies hardly identify the nonlinear impact of domestic
credit on economic growth. According to Akpansung and Babalola (2011), empirical
evidence on the impact of finance on economic growth has been mixed and remained a
debated subject. In spite of the importance that policymakers attach on the role of finance on
economic growth, to date there is no consensus in the literature on the reverse causality
(Muhoza, 2019). An analysis of the trend of monetary and financial variables also shows that
credit to the private sector, money supply and market capitalization have been on an annual
increase and have boosted economic growth. However, the recent low levels of economic
growth, even in the face of notable financial sector developments, raises doubts about the role
of the financial system in promoting economic growth in Nigeria. There is, therefore, the
need to re-evaluate this relationship with a view to understanding whether finance still
matters significantly in the face of other variables that could be impacting output growth
(Akintola, Oji-Okoro, & Itodo, 2020).
1.3 OBJECTIVES OF THE STUDY
The main objective of the research is to investigate impact of domestic credit on the Nigerian
economic performance with the period, 1999-2022. The specific objectives are to:
1. To ascertain the impact of net domestic credit to the private sector on gross domestic
product in Nigeria.
2. To evaluate the impact of net domestic credit to the private sector on unemployment
rate in Nigeria.
3. To investigate the impact of net domestic credit to the private sector on interest rate in
Nigeria.
4. To assess the impact of net domestic credit to the public sector on gross domestic
product in Nigeria.
5. To evaluate the impact of net domestic credit to the public sector on unemployment
rate in Nigeria.
6. To determine the impact of net domestic credit to the public sector on interest rate in
Nigeria.

1.1 RESEARCH QUESTIONS

As a follow up to the above stated objectives, the following research questions were
formulated to guide this research.
1. To what extent did net domestic credit to the private sector impact gross domestic
product in Nigeria?
2. What magnitude of impact did net domestic credit to the private sector have on
unemployment rate in Nigeria?
3. How far did net domestic credit to the private sector impact unemployment rate in
Nigeria?
4. To what extent did net domestic credit to the public sector impact gross domestic
product in Nigeria?
5. How far did net domestic credit to the public sector impact unemployment rate in
Nigeria?
6. What efficacy of impact did net domestic credit to the public sector have on interest
rate in Nigeria?
1.2 RESEARCH HYPOTHESIS
To follow up to the research questions, researcher formulated the following null hypotheses.
H01: Net domestic credit to the private sector did not have positive and significant impact on
gross domestic product in Nigeria.
H02: Net domestic credit to the private sector did not have positive and significant impact on
unemployment rate in Nigeria.
H03: Net domestic credit to the private sector did not have positive and significant impact on
interest rate in Nigeria.
H04: Net domestic credit to the public sector did not have positive and significant impact on
gross domestic product in Nigeria.
H05: Net domestic credit public sector did not have positive and significant impact on
unemployment rate in Nigeria
H06: Net domestic credit public sector did not have positive and significant impact on interest
rate in Nigeria.
1.3 SCOPE OF THE STUDY
The study seeks to evaluate the impact of domestic credit on Nigeria’s economic performance
from 1999-2022. The independent variables for this study include; gross domestic product,
unemployment rate, and interest rate, while the dependent variables are; net credit to the
private sector and net credit to the public sector. The country Nigeria will be chosen on the
basis that it doubles as one of Africans largest economy as well the most populated African
country.
2

However, the study covers a twenty-three (23) year period from 1999-2022. The choice
becomes appropriate because, in 1999 a new political and democratic era were ushered in
Nigeria. A panel data technique will be used in analyzing the data for the study. The data for
the study will be collected from Central Banks of Nigeria statistical bulletin, as well as the
international monetary fund (IMF) data base.

1.4 SIGNIFICANCE OF THE STUDY

Conceptualizing the relationship between domestic credit and economic performance in
Nigeria as emerging economy and economic giant in Africa, this study will empirically
explore the existing literature with their underpinning theories, enhancing reconciliation of
conflicting views and theories on the subject, aid resource prioritization especially sources
and availability of finance and guiding the formulation of appropriate economic policy. To
provide a précised, vivid and robust analysis, this study would differ by utilizing net domestic
credit. The study will entrench policy prescriptions that would aid policymakers in her efforts
to achieving strong, stable and resilience financial system that will guarantee, promote
sustainable domestic financing of investments in Nigeria and instill domestic economic growth
and development. This study would be of immense benefit to the Academics/researchers,
government and investors.

Academics/Researchers
This research will contribute to the vast body of empirical literature available in this area of
finance and economic development. It will provide deep insight on the issues relating to
domestic credit on economic performance in Nigeria. The study will therefore provide
detailed recommendations through its findings to relevant authorities and academia in
Nigeria. Like they say, the unknown, in academic research, is never exhausted, as the list of
what we don’t know could go on indefinitely.

Government/Policy makers
The study will provide some guides to economic planners and institutions, such as the federal
ministry of budget and national planning, the central bank of Nigeria (CBN), Nigerian
national planning commission and national economic empowerment and development
strategy (NEEDS in making projections on the anticipated economic growth and
development strategies in Nigeria. Findings and recommendations of this study will also give
regulatory authorities more insight and a new perspective as regards to monetary policy
framework to promote domestic credit. The study will aid policy makers such as state and
national economic council, economic planning commission, the central bank of Nigeria in
making some sensitive economic policies on the nexus of domestic credit and economic
performance, enhance her regulatory and supervisory framework for efficient and effective
economic growth and development including fiscal and monetary policies of the government.

Investors
The findings and recommendations of this study will enlighten investors on the importance of
policy shift as it relates domestic financial intermediation. The research will be of immense
benefit to prospective and existing investors in making investment decisions in the Nigerian
economy, especially in determining internal sources of business finance and cost of capital,
exchange rate volatility, interest rate policy in respond to trend in the financial system.
Therefore, the recommendations and conclusions of the study will allow investor and
potential investors make strategic and important decision as it relates to investing in Nigeria.

METHODOLOGY

3.1 Research Design

The “ex-post facto” was adopted as research design, relying on the fact that secondary data
was utilized cannot be manipulated by the researcher. Ex-post facto research design is
research which aims at determining, establishing or measuring the relationship between one
variable or the impact of one variable on another, in which the variables involved are not
manipulated by the researcher (Onwumere, 2021).

3.2 Nature and Sources of Data

The study will use secondary data sourced from the international monetary fund (IMF) data
base, the central bank of Nigeria (CBN) annual reports and statistical bulletins. Secondary data
would be utilized because the nature of such research requires existing data, not raw or
primary data that have not been utilized. According to Olawumi, Lateef and Oladeji (2017),
the choice of secondary data was made as it is faster, reduces time wastages in data gathering,
it is non-reactive, often available for re-analysis, it also provides a broad background and
readily improves one’s learning curve. Sources of data were chosen because the institutions
are of international reputes and banks data with unquestionable integrity, which are required
for reliable results from the analysis. Although, the source of the data is not as important as its
quality and its relevance for particular purposes (Olawumi, Lateef and Oladeji, 2017).

3.3 Specification of Models

The researcher modified some relevant models by adjusting the model variables to explore the
individual effect of the independent variable on the dependent holding other things constant
(ceteris-baribus). These models include, Ukpabi, Eleje and Onu (2021), Kumar and Paramanik
(2020), Jayaraman, Choong and Ng (2017), Haruna, Saifullahi and Mukhtar (2013), Ghildiyal,
Pokhriyal and Mohan (2015) and Adediran, Oduntan and Matthew (2015).

Ukpabi, Eleje and Onu (2021) model:

 n1 n2
∆ InRGDPt =β 0+∑ β 1 ∆ InRGDPt −1+ ∑ β 2 ∆ InCPSt −1+ ∅ 1 InRGDPt−1+¿ ∅ 2 InCPSt −1+ϵt … … … …
t =0 t =0

Where: RGDP is the real gross domestic product, CSP is credit to the private sector
percentage of GDP, In is the log of the variables. Δ represents the first difference operator.
β01 is the constant term and β1 and β2 represent the short-run coefficients. ϕ1 and ϕ2 is the
long-run coefficients, n1 and n2 the lag length and ɛtr represents the error term.
Kumar and Paramanik (2020) model:
n1 n2 n3 n4 n5
∆ Yt=α 0+ ∑ α 1 ∆ Yt −k + ∑ α 2 ∆ CPS−k + ∑ α 3 ∆ OPEN t−k + ∑ α 4 ∆ EXCHt−k + ∑ α 5 ∆≥¿ t −k + λ 0 Y
k−1 k−0 k−0 k−0 k−0

Where: Y is real output (represented by log of real GDP at market price); FD denotes financial
development (proxied by ratio of broad money to GDP); trade openness is denoted by OPEN
(proxied by sum of export and import to GDP ratio); GE denotes the real gross government
expenditure (represented by government final consumption expenditure to GDP ratio); EXCH
denotes the real exchange rate, α 1 … α 5 denotes short run effect and μ is an error term, λ 1… λ 4
reflect long run effects of exogenous variable and ϵt is the error term.

Ghildiyal, Pokhriyal and Mohan (2015) model:

p q1 Q2 Q3 q4
L ( Y t )=α 0+ ∑ α 1 L ( Yt−i ) +¿ ∑ α 2iL ( Mt −i )+¿ ∑ α 3 iL ( MCt−i ) +¿ ∑ α 4 iL (CRt −1 ) +∑ α 5 iL ( Tt −i )+ ¿ ε
i=1 i=1 i =1 i=1 i=1

Where: α 0=constant , LY= GDP per capita, LM= ratio of broad money (M2) to GDP, LMC =
indicator of stock market development. This is measured as the ratio of stock, market
capitalization to GDP, LCR= is the ratio of credit to private sector to GDP. Representing the
banking sector development, LT= ratio of total trade (import plus export) to GDP representing
economic openness,α 1 … α 5∧Yt short run effects ,∧Yt=longrun relationship , ε t=error term .

Jayaraman, Choong and Ng (2017) model:

p
∆ INVt =β 2 0+ β 21 Yt −1+ β 22 INVt −1+ β 23 FDIt −1+ β 24 PSCt−1+ β 25 OPENt−1+ β 26 FDIPSCt−1+ ∑
i=

INV = gross capital formation (GCF) in percent of GDP), FDI = foreign direct inflows
(percent of GDP), PSC = credit by banks to private sector (percent of GDP), OPEN = total
trade (percent of GDP), FDIPSC = interaction term between FDI and PSC,
β 21. .26=short run relationship , , α 21 ….26=longrun relationship . β 20=constant , ∆ percentage change ,∧ϵ 2
term.
Haruna, Saifullahi and Mukhtar, S. (2013) model:
 k k k
∆ Yt=α 0+α 1 ∑ ∆ Yt − j+ α 2 ∑ ∆ X 1t− j+α 3 ∑ ∆ X 2t− j+V 1 Yt−1+V 2 X 1t −1+V 3 X 2t−1+ µ t … … …
j=1 j=0 j=0

Where: Y is unemployment rate, X is credit to the private sector, X2 is the broad money
supply, ratio of money supply to GDP. α 0 is the constant term and α 2 … . α 3 represent the
short-run coefficients. V2.V3 long run coefficients, k and j is the lag length and ut represents
the error term.
Adediran, Oduntan and Matthew (2015)
n
∆ InIN Ft =ρ 0+ ρ2 DUM + ρ3∈ POV t−1+ ρ 4 ∈INF t−1+ ρ5∈FND t −1+ ρ 6 GRW t−1+ ∑ ρ 1i ∆ INF t−i+
i−1

Where: lnPOV, lnFND, lnINF and lnGRW are respectively, the logs of poverty, financial
development, inflation, and economic growth. ∆ denotes first difference operator.
ρo is constant . ρ 1…. ρ 6 are the parameters of the model. DUM is a dummy variable which
takes a value of one when there is a structural break and zero otherwise. t and u denotes the
time subscript and error term respectively.

With respect to models in this study, the following are noteworthy for model
specifications and hypothesis testing:
For hypothesis one which states that net domestic credit did not have positive and significant
impact on gross domestic product (GDP) in Nigeria, would be tested with the model specified
in equation (7) below:
P p
∆ NCPS ¿= β0 + ∑ αi ∆ NCPS¿−1+ ∑ ϑi ∆ RGDP ¿−1 +δ 1 ∆ NCPS¿−1 + δ 3 ∆ RGDP¿−1 +ε … … … … … … … … … …
I=0 i =0

Where: NCPS is net domestic credit to the private sector, RGDP is the real gross domestic
product, Δ represents the first difference operator. β01 is the constant term and β1 and β2
represent the short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term
(2) For hypothesis two which states that net domestic credit did not have positive and
significant impact on gross fixed capital formation in Nigeria, would be tested with the model
specified in equation (8) below:

P p
∆ NCPS ¿= β0 + ∑ αi ∆ NCPS¿−1+ ∑ ϑi ∆ UNER¿−1+ δ 1 ∆ NCPS¿−1+ δ 3 ∆ UNER¿−1+ ε … … … … … … … … … … …
I=0 i =0

Where: NCPS is net domestic credit to the private sector, UNER is the Unemployment rate, Δ
represents the first difference operator. β01 is the constant term and β1 and β2 represent the
short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term
(3) For hypothesis three which states that net domestic credit to the private sector did not have
positive and significant impact on interest rate in Nigeria would be tested with the model
specified in equation (9) below:

P p
∆ NCPS ¿= β0 + ∑ αi ∆ NCPS¿−1+ ∑ ϑi∆ INTR¿−1+ δ 1 ∆ NCPS¿−1+ σ 2 ∆ INTR ¿−1+ ε … … … … … … … … … … …
I=0 i =0

Where: NCPS is net domestic credit to the private sector, INTR is the interest rate, Δ
represents the first difference operator. β01 is the constant term and β1 and β2 represent the
short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term

(4) For hypothesis four which states that net domestic credit to the public sector did not have
positive and significant impact on real gross domestic product in Nigeria, would be tested with
the model specified in equation (10) below:
P p
∆ NCPUS¿ =β 0 + ∑ αi ∆ NCPUS¿−1+ ∑ ϑi ∆ RGDP¿−1 +δ 1 ∆ NCPUS ¿−1 +δ 2 ∆ RGDP¿−1 + ε … … … … … … … …
I=0 i =0

Where: NCPUS is net domestic credit to the public sector, RGDP is the real gross domestic
product, Δ represents the first difference operator. β01 is the constant term and β1 and β2
represent the short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term

(5) For hypothesis five which states that net domestic credit to the public sector did not have
positive and significant impact on unemployment rate in Nigeria, would be tested with the
model specified in equation (11) below:

P p
∆ NCPUS¿ =β 0 + ∑ αi ∆ NCPUS¿−1+ ∑ ϑi ∆ UNER¿−1+ δ 1 ∆ NCPUS ¿−1 +δ 2 ∆ UNER¿−1 +ε … … … … … … … …
I=0 i =0

Where: NCPUS is net domestic credit to the public sector, UNER is the Unemployment rate,
Δ represents the first difference operator. β01 is the constant term and β1 and β2 represent the
short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term

(6) For hypothesis six which states that net domestic credit to the public sector did not have
positive and significant impact on interest rate in Nigeria, would be tested with the model
specified in equation (12) below:

P p
∆ NCPUS¿ =β 0 + ∑ αi ∆ NCPUS¿−1+ ∑ ϑi ∆ INTR¿−1+ δ 1 ∆ NCPUS¿−1 +δ 2 ∆ INTR ¿−1+ ε … … … … … … … … …
I=0 i =0
Where: NCPUS is net domestic credit to the public sector, UNER is the Unemployment rate,
Δ represents the first difference operator. β01 is the constant term and β1 and β2 represent the
short-run coefficients. ᵟ1, ϑ is the Coefficient of Variables. e is the Error Term

3.4 Description of model variables

Net Domestic Credit (NDC): This is the value of aggregate credits to the Nigerian economy
less credit from abroad. This proxy represents domestic credit and was utilized by existing
literature, including Camba and Camba (2020), Obeng-Amponsah Sun and Havid (2019),
Adelegan (2018) and Ofori-Abebrese, Pickson and Diabah (2017).

Real gross domestic product (RGDP): This is the GDP at 2010 constant basic price. This is
the GDP at a base year market prices less indirect taxes net of subsidies. Enormous existing
literature have utilized this proxy, including Begum, Aziz and Sotto (2018), Begum and Aziz
(2019) and Muhoza (2019).
Net credit to the private sector (NCPS) This refers to financial resources provided to the
private sector by financial corporations, such as through loans, purchases of non-equity
securities, account receivable and trade credits that establish a claim for repayment. This
proxy was used in Obeng-Amponsah Sun and Havid (2019), Adelegan (2018), Ukpabi, Eleje
and Onu (2021) and Jayaraman, Choong and Ng (2017).
Net credit to the public sector (NCPUS) This refers to financial resources provided to the
public sector by financial corporation. For examples, trade credit, loans and account
receivables that establishes a claim for repayment. This proxy was used in This proxy was
used in Begum and Aziz (2019).
Unemployment rate (UNER) is the annual unemployment rate in Nigeria. This proxy was
used mostly in previous studies including Akande (2019), Afonso and Blanco-Arana (2018)
and Omofa (2017).
Interest rate (INTER) is the maximum weight average deposit/lending rate of deposit money
bank. Yakubu, Abokor and Balay (2021), Nkwede (2020), Olaniyan (2019) and Ikubor (2019).

3.5 Techniques of Analysis

The researcher proposed to apply Autoregressive distribution lag (ARDL) bounds test in the
analysis. ARDL was adjudged superior to examining the impact among data series in both
short run and long run especially when the variables are suspected to be stationary at both
level and first differencing. According to Lawal et al. (2016) and Ogwumike and Salisu
(2017), ARDL bounds test technique has several advantages over other estimation techniques
such as Engle and Granger (1987) and Johansen (1991). First, it can be applied regardless of
the order of the integration of the regressors either I(1) and/or I(0)); it is a more statistically
significant approach for examining correlation when faced with small data size as other
techniques require large data size for validity to hold. It also allows for the variables to have
different optimal lags, which is not applicable to other techniques. Lastly, the technique
employs a single reduced form equation for determining both long run and short run
relationship among variables which makes it simple to implement and interpret and free of
residual correlation rather than having a multiple equation to estimate as in the case of the
Vector Autoregressive (VAR) model, and different variables can be assigned different lag
lengths in the model.

This technique was mostly used in related literature by, Adekunle and Ayeni (2021), Yakubu,
Abokor and Balay (2021), Nestor and Ebikela (2020), Camba and Camba (2020), Yusuf and
Mohd (2021 ) and Ofori-Abebrese, Pickson and Diabah (2017). Eric and Zhongxiu (2017)
and Puatwoe and Piabuo (2017), support that there are three specific advantages associated
with this approach: (a) It circumvents the problem of the order of integration associated with
the Johansen likelihood approach (Johansen and Juselius (1990). (b) Unlike most of the
conventional multivariate cointegration procedures, which are valid for large sample size, the
bounds test approach is suitable for small sample size study. (c) It provides unbiased estimates
of the long run model and valid t-statistics even when some of the regressors are endogenous.
Furthermore, the error correction term (ECT) which integrates short-run adjustments with long
run equilibrium without losing long-run information, can be derived from ARDL through a
simple linear transformation.

DATA PRESENTATION AND ANALYSIS

4.0 INTRODUCTION
In this chapter, data for the study, sourced from the World Bank African Development
Indicator and Central Bank Statistical Bulletin were presented, tested and analysed.
1.0 Data Presentation and Analysis
The data set for the empirical analyses of this study are presented and analysed. The analyses
are based on the descriptive statistic, correlation matrix, unit root test statistics. The tables
below, was used to explain the behaviour of our model proxies.

Table 4.1: Descriptive Statistics

VAR MEAN MEDIAN MAX MINI STD DEV. CV SKEWNESS KURTOSIS

CPS 11.687 11.337 19.603 8.080 3.114 0.266 0.879 3.485

CPUS 5.141 4.538 11.290 2.992 1.985 0.385 1.603 5.273
GDP 4.955 5.612 15.329 -1.794 3.718 0.749 0.410 4.022
UNEMR 5.156 3.863 9.790 3.700 2.158 0.417 1.201 2.744
INTR 5.578 5.915 18.180 -5.627 5.612 1.007 0.094 2.746
SOURCE: Authors Compilation from Eviews Result

Table 4.1 above showed the descriptive statistics of the series in Nigeria from 1999-2022.
The result showed that the variables were all positively skewed which indicated the degree of
the departure from symmetry with kurtosis all ranging from mesokurtic and leptokurtic across
the variables. The standard measures of central tendency like the mean and median as
reported, showed that credit to the private sector, and interest rate have the largest mean value
of 11.68, and 5.58, and median of 11.33 and 5.91 respectively. While gross domestic product
and credit to the public sector showed a lower mean value of 4.95 and 5.14 respectively. The
coefficient of variance which measures the strength of the correlative relationship of the
variables were positive and normally distributed as it tends to hover around the mean.

CORRELATION MATRIX

VARIABLES CPS CPUS GDP UNEMR INTR

Credit to the private sector (CPS) 1

Credit to the public sector (CPUS) 0.203 1

(0.34)

Gross Domestic Product (GDP) -0.130 -0.138

(0.54) (0.51) 1

Unemployment Rate (UNEMR) 0.148 -0.027 -0.647 1

(0.48) (0.89) (0.00)

 Interest Rate (INTR) 0.517 -0.014 -0.063 -0.101 1

(0.00) (0.94) (0.76) (0.63)

SOURCE: Authors Compilation from Eviews Result

In Table 4.2 above the correlation analysis, showed a mixture of positive and negative
correlation between domestic credit and economic performance variables. There is no
evidence of significant multicollinearity as indicated by the correlation matrices.

4.1.3 UNIT ROOT TEST

PANEL

Series ADF T-Stat Critical Values P. Value Order

1% 5% 10%

CPS -3.857 -3.788 -3.012 -2.646 0.00 1(1)

CPUS -3.876 -3.769 -3.004 -2.642 0.03 1(1)

GDP -4.883 -4.416 -3.622 -3.248 0.01 1(0)

UNEMR -4.941 -4.571 -3.690 -3.286 0.01 1(0)

INTR -4.448 -3.808 -3.020 -2.650 0.00 1(1)

SOURCE: Authors Compilation from Eviews Result

The results of the unit root test of the panel time series are shown in table 4.1.3. The unit root
features of the given series were examined because the ARDL estimation technique only
accepts I(1) and I(0) variables (order two I(2) variables are not permitted). The outcome
showed that, for the panel data, all variables are integrated of orders I(1) and I(0). As a result,
at the 0.05 level of significance, the null hypothesis of I(2) is rejected for all the variables.
The outcomes, however, support the use of the ARDL estimator without concern for data
misspecification or spuriousness.

Short and Long Run ARDL Result

Table 4.1.4 Short and Long Run ARDL Model
DEPENDENT VARIABLE – CPS

VARIABLES CO-EFFICIENT T-STAT PROB

 Gross Domestic Product -0.01 0.04 0.96

Unemployment Rate 0.07 0.18 0.85

Interest Rate 0.10 0.79 0.44

Diagnostic Test

R2 F-STAT FPSS ECMt–1 LM HET RESET

0.61 3.5 0.91 > I(0)/I(1) -0.55 2.39 1.14 1.69

(0.01) (0.14) (0.39) (0.22)

DEPENDENT VARIABLE – CPUS

VARIABLES CO-EFFICIENT T-STAT PROB

Gross Domestic Product -0.89 -1.33 0.21

Unemployment Rate 2.85 1.34 0.22

Interest Rate -1.7 -1.23 0.25

Diagnostic Test

R2 F-STAT FPSS ECMt–1 LM HET RESET

0.82 6.12 3.94> I(0)/I(1) -0.30 0.48 1.30 1.38

(0.02) (0.64) (0.35) (0.21)

Source: Authors Compilation (Eviews Result)

4.1.6 Presentation of Results

From the panel ARDL results, we discovered that gross domestic product has negative and
non-significant impact on credit to the private sector in Nigeria (GDP/CPS: Coeff: -0.001, P-
val 0.96). This implies that a decline in GDP will result in a simultaneous fall in credit
available to the private sector. While unemployment rate and interest rate both had positive
but non-significant impact on credit to the private sector in Nigeria (UNEMR/CPS: Coeff:
0.07, P-val 0.85 and INTR/CPS: Coeff: 0.10, P-val 0.44). This implies that a unit increase in
both unemployment rate and interest rate will result in slight rise in credit available to the
private sector. Furthermore, the ARDL bound test, revealed that there is no long-run
relationship exist between the dependent and independent variables, as the FPSS (0.91) is less
than the I(1) and I(0), respectively. The short-run parameter of importance is error correction
terms (ECT), which demonstrate how the system adjusts to long-run equilibrium at a speed of
55%. That is, it takes approximately (1) year and 8 months to restore full equilibrium
between the variables. The diagnostic tests prove that the ARDL model have good fit (GDP:
R2 = 61%), is stable (RESET: P-val 0.22), have no autocorrelation residual (LM: P-val 0.14)
and the variance of the residual is constant (HET: P-val 0.39).

For credit to the public sector, the findings revealed that both gross domestic product and
interest rate have negative and non-significant impact on credit to the public sector in Nigeria
(GDP/CPUS: Coeff: -0.89, P-val 0.21 and INTR/CPUS: Coeff: -1.70, P-val 0.25). this
implies that a unit decline in GDP and INTR will result in a significant fall in credit to the
private sector in Nigeria. While unemployment rate has positive but non-significant impact
on credit to the public sector in Nigeria (UNEMR/CPUS: Coeff: 2.85, P-val 0.22). this
showed that a unit rise in unemployment rate will result in a slight decrease in credit available
to the private sector in Nigeria. However, the ARDL result showed that there is no long-run
relationship between the dependent and independent variables, as the FPSS (3.94) is less than
the I(1) and I(0), respectively. The short-run parameter of importance is error correction
terms (ECT), which demonstrate how the system adjusts to long-run equilibrium at a speed of
30%. That is, it takes approximately (3) year and 3 months to restore full equilibrium
between the variables. The diagnostic tests prove that the ARDL model have good fit (GDP:
R2 = 82%), is stable (RESET: P-val 0.21), have no autocorrelation residual (LM: P-val 0.64)
and the variance of the residual is constant (HET: P-val 0.35).

4.2 TEST OF HYPOTHESIS

For the purposes of this study, four stages were taken to test the hypotheses, which are as
follows:

 Hypothesis statement in null and alternate form

 State the choice criteria for rejecting the null hypotheses
 Present the test results for the relative hypotheses
 Make a decision on the hypotheses using the decision rule.

4.2.1 TEST OF HYPOTHESIS ONE

Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Gross Domestic Product did not have positive and significant impact on credit to the
private sector in Nigeria.
H1: Gross Domestic Product have positive and significant impact on private to the private
sector in MINT countries.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.
Step Three: Presentation of Test Result

Variables Coeff T-Stat P.val

Dependent- CPS

Gross Domestic Product -0.01 0.04 0.96

Source: Authors Compilation (Eviews Result)

Step Four: Decision of Hypothesis One

Following the test results as showed in table 4.1.4, the coefficient of Gross domestic product
is found to be negative while the associated p-value of the t-statistics is above 0.05 which is
the level of significance. This showed that GDP has negative and non-significant impact on
credit to the private sector in Nigeria. This implied that a drop in GDP will result in a -0.01
significant fall in credit available to the private sector in Nigeria.

4.2.2 TEST OF HYPOTHESIS TWO

Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Unemployment rate did not have positive and significant impact on credit to the private
sector in Nigeria.
H1: Unemployment rate have positive and significant impact on private to the private sector in
Nigeria.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.
Step Three: Presentation of Test Result

Variables Coeff T-Stat P.val

Dependent- CPS

Unemployment Rate 0.07 0.18 0.85

Source: Authors Compilation (Eviews Result)
Step Four: Decision of Hypothesis Two
Following the test results as showed in table 4.1.4, the coefficient of unemployment rate is
found to be positive while the associated p-value of the t-statistics is above 0.05 which is the
level of significance. This showed that unemployment rate has positive and non-significant
impact on credit to the private sector in Nigeria. This implied that a unit increase in
unemployment rate will result in a 0.07 slight influence on credit available to the private
sector in Nigeria.

4.2.3 TEST OF HYPOTHESIS THREE

Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Interest rate did not have positive and significant impact on credit to the private sector in
Nigeria.
H1: Interest rate have positive and significant impact on private to the private sector in
Nigeria.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.
Step Three: Presentation of Test Result

Variables Coeff T-Stat P.val

Dependent- CPS

Interest Rate 0.10 0.79 0.44

Source: Authors Compilation (Eviews Result)

Step Four: Decision of Hypothesis Three

Following the test results as showed in table 4.1.4, the coefficient of interest rate is found to
be positive while the associated p-value of the t-statistics is above 0.05 which is the level of
significance. This showed that interest rate has positive and non-significant impact on credit
to the private sector in Nigeria. This implied that a unit increase in interest rate will result in a
0.10 slight increase on credit available to the private sector in Nigeria.
4.2.1 TEST OF HYPOTHESIS FOUR
Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Gross Domestic Product did not have positive and significant impact on credit to the
public sector in Nigeria.
H1: Gross Domestic Product have positive and significant impact on private to the public
sector in Nigeria.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.
Step Three: Presentation of Test Result

Variables Coeff T-Stat P.val

Dependent- CPUS

Gross Domestic Product -0.89 -1.33 0.21

Source: Authors Compilation (Eviews Result)

Step Four: Decision of Hypothesis Four

Following the test results as showed in table 4.1.4, the coefficient of Gross domestic product
is found to be negative while the associated p-value of the t-statistics is above 0.05 which is
the level of significance. This showed that GDP has negative and non-significant impact on
credit to the private sector in Nigeria. This implied that a drop in GDP will result in a -0.89
significant fall in credit available to the public sector in Nigeria.

4.2.2 TEST OF HYPOTHESIS FIVE

Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Unemployment rate did not have positive and significant impact on credit to the public
sector in Nigeria.
H1: Unemployment rate have positive and significant impact on private to the public sector in
Nigeria.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.

Step Three: Presentation of Test Result

 Variables Coeff T-Stat P.val

Dependent- CPUS

Unemployment Rate 2.85 1.34 0.22

Source: Authors Compilation (Eviews Result)

Step Four: Decision of Hypothesis Five

Following the test results as showed in table 4.1.4, the coefficient of unemployment rate is
found to be positive while the associated p-value of the t-statistics is above 0.05 which is the
level of significance. This showed that unemployment rate has positive and non-significant
impact on credit to the public sector in Nigeria. This implied that a unit increase in
unemployment rate will result in a 2.85 slight increase in credit available to the private sector
in Nigeria.

4.2.3 TEST OF HYPOTHESIS SIX

Step One: Restatement of the Hypothesis in Null and Alternate form

H0: Interest rate did not have positive and significant impact on credit to the public sector in
Nigeria.
H1: Interest rate have positive and significant impact on private to the public sector in Nigeria.
Step Two: Decision Rule
For the decision rule, reject null hypothesis if the p-value of the t-statistics found to be less
than the chosen level of significance (0.05); otherwise, refuse to reject the null hypothesis.
Step Three: Presentation of Test Result

Variables Coeff T-Stat P.val

Dependent- CPUS

Interest Rate -1.7 -1.23 0.25

Source: Authors Compilation (Eviews Result)

Step Four: Decision of Hypothesis Six

Following the test results as showed in table 4.1.4, the coefficient of interest rate is found to
be negative while the associated p-value of the t-statistics is above 0.05 which is the level of
significance. This showed that interest rate has negative and non-significant impact on credit
to the public sector in Nigeria. This implied that a unit decrease in interest rate will result in a
0.10 slight fall in credit available to the public sector in Nigeria.
SUMMARY OF FINDINGS
The summary of findings emanating from the study is as follows:
1. Gross Domestic Product (GDP) has negative and non-significant impact on credit to
the private sector in Nigeria (Coeff: -0.001, P-val 0.96). This implied that a fall in
GDP will result in a significant decrease in credit to the private sector.

2. Unemployment rate has positive but non-significant impact on credit to the private
sector in Nigeria (Coeff: 0.07, P-val 0.85). This showed that, a unit rise in
Unemployment rate will cause a slight decline on credit to the private sector in
Nigeria.

3. Interest Rate has positive but non-significant impact on credit to the private sector in
Nigeria (Coeff: 0.10, P-val 0.44). This Implied that a unit rise in interest rate will
result in a slight fall on credit to the private sector in Nigeria.

4. Gross Domestic Product (GDP) has negative and non-significant impact on credit to
the public sector in Nigeria (Coeff: -0.89, P-val 0.21). This implied that a fall in GDP
will result in a significant decrease in credit to the private sector.

5. Unemployment rate has positive but non-significant impact on credit to the public
sector in Nigeria (Coeff: 2.85, P-val 0.22). This showed that, a unit rise in
Unemployment rate will cause a slight decline on credit to the public sector in
Nigeria.

6. Interest Rate has negative but non-significant impact on credit to the public sector in
Nigeria (-1.70, P-val 0.25). This Implied that a unit fall in interest rate will result in a
slight decrease on credit to the public sector in Nigeria.

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