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On the Causality between Domestic Credit Aggregates and Economic Growth in a Multivariate VAR Framework: Evidence from Nigeria

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  • Evans, Olaniyi

Abstract

The major objective of this paper is to empirically investigate the relationship between domestic credit and economic growth in Nigeria, using annual time series data from 1970 to 2012. In order to do this, the study employs KPSS unit root test, Johansen cointegration test, VAR modeling, impulse response function, variance decomposition and granger causality. Firstly, the findings reveal that there is a bi-directional causality and positive relationship between domestic credit and the economic growth in Nigeria. That is, domestic credit does not only contribute positively to economic growth in Nigeria, but the impact is strong and statistically significant. The findings have a strong implication on financial policy in Nigeria. The major implication is that an efficient financial system is one of the foundations for building sustained economic growth. Considering regulations, institutional constraints and other macro-economic factors militating against domestic credit in the economy, government should make the environment conducive and supportive so that performance is enhanced and good lending behaviour guaranteed.

Suggested Citation

  • Evans, Olaniyi, 2013. "On the Causality between Domestic Credit Aggregates and Economic Growth in a Multivariate VAR Framework: Evidence from Nigeria," MPRA Paper 51731, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:51731
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    References listed on IDEAS

    as
    1. Suleiman Abu-Bader & Aamer S. Abu-Qarn, 2006. "Financial Development and Economic Growth Nexus:Time Series Evidence from Middle Eastern and North African Countries," Working Papers 0609, Ben-Gurion University of the Negev, Department of Economics.
    2. Rudra Prakash Pradhan, 2010. "Financial Deepening, Foreign Direct Investment and Economic Growth: Are They Cointegrated," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 1(1), pages 37-43, December.
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    Cited by:

    1. Douanla Tayo, Lionel, 2014. "Assessing the effect of monetary policy on economic growth in franc zone," MPRA Paper 60201, University Library of Munich, Germany.

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    More about this item

    Keywords

    Domestic Credit; Economic growth; Johansen cointegration test; VAR modeling; impulse response function; variance decomposition and granger causality; financial system and Nigeria;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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