BANK CREDIT AND ECONOMIC GROWTH - CSAE.pdfVIP

BANK CREDIT AND ECONOMIC GROWTH: THE NIGERIAN EXPERIENCE By Roseline Oluitan Abstract This paper examines the significance of bank credit in stimulating output within the real sector and the factors that prompt financial intermediation within the economy. The study is a contribution to the existing literature on finance and growth applied to the Nigerian economy. Available statistics show that the economy has been thriving predominantly on proceeds from oil exports over the last three decades. Evidence from this work shows that real output causes financial development, but not vice versa. It was also observed that export of oil and non-oil export are not significant in driving financial development; but growth in the financial sector is highly dependent on foreign capital inflows1. 1.0 Introduction The importance of financial institutions in generating growth within the economy has been widely discussed in the literature. Early economists such as Schumpeter in 1911 identified banks’ role in facilitating technological innovation through their intermediary role. He believed that efficient allocation of savings through identification and funding of entrepreneurs with the best chances of successfully implementing innovative products and production processes are tools to achieve this objective. Several scholars thereafter (McKinnon 1973, Shaw 1973, Fry 1988, King Levine 1993) have supported the above postulation about the significance of banks to the growth of the economy. In assessing the relationship, a large number of recent empirical studies1 have relied on measures of size or structure to provide evidence of a link between financial system development and economic growth. They used macro or sector level data such as the size of financial intermediation or of external finance relative to GDP and found that financial developmen