Deposit Money Banks’ Credit Allocation to Selected Sectors and the Performance of the Nigerian Economy

Abstract

This study investigates the impact of credit allocation given by Deposit Money Banks (DMB) to the agricultural and manufacturing sectors on the performance of the Nigerian economy from 1986 to 2020. In achieving this objective, the study employs the Autoregressive Distributed Lag (ARDL) to evaluate the short-run and long-run impacts as well as the Granger causality tests to examine the nature of causality. The ARDL bounds test reveals the presence of long-run co-integration among the variables. The ARDL technique discloses that DMB credit allocation to the manufacturing sector has a negative and insignificant effect on economic growth in both the first and second lags. The ARDL technique also shows that DMB credit allocation to the agricultural sector has a positive and insignificant effect on economic growth in Nigeria. The granger causality test shows that there is no causal relationship between DMB credit to the manufacturing and agricultural sectors and economic growth. The study recommends that the government through financial authorities must ensure that DMB credits are monitored and channeled appropriately to the agricultural and manufacturing sectors so as to prevent such funds from entering private pockets.