Modelling the financial intermediation function of commercial banks investment and economic growth in Nigeria

Abstract

This paper examined the impact of financial intermediation function of the commercial banks on economic growth in Nigeria using the annual time series data from 1987 to 2016 by employing the Engle-Granger technique for the estimation of the error correction model, pearson correlation and the Vector auto regression model. Following a detailed time series analysis, the findings reveal that the commercial bank financial intermediation function has a positive relationship with economic growth in Nigeria but this relationship is not significant and the regression results shows that as important as all the variables are to economic growth, they have not actually impacted real GDP. The study also showed that the interest rate is a very important factor to credit since it has a significant negative relationship with the credit to the private sector, capital stock and money supply. We therefore recommend that commercial banks credit department advance more credit to private sector used for economic activities that will impact the real economy like the manufacturing and agricultural sectors and the government can also encourage economic growth by introducing incentives like tax holiday, low export duties amongst others to the participants in the sectors that boost the real economy.