ABSTRACT
The study was conducted to examined the impact of Bank credit on manufacturing sector output in Nigeria. Given the lack of consensus among previous researches on the subject became the major problem of the study. The study sought to determine the impact of bank loan and advance, bank lending rate, bank savings deposit rate and inflation rate on manufacturing sector output in Nigeria. The study adopted ex-post research design, secondary annual time series data sourced from the Central Bank of Nigeria Statistical Bulletin was employed. The data collected were analyzed using multiple regression analysis. Johasen co-integration test and vector error correction test. Other diagnostic test such as unit root test, Normality test, serial correlation test and hetroskedasticity test were also conducted. Findings revealed that bank loan and advances had positive but insignificant impact on manufacturing sector output in Nigeria. Bank lending rate, Bank savings deposit rate and inflation rate all had negative but insignificant impact on manufacturing sector output in Nigeria. The study therefore recommends that Banks should strengthened their credit monitoring mechanism to ensure that loan and advance from banks are adequately utilized by manufacturing sector. The government should endeavor to improve the infrastructural base, such as adequate power supply, so as to reduce the operating cost and interest banks charges. Also Central Bank of Nigeria should purse moderately expansionary monetary policy to also reduce the cost of funds in the economy. The Central Bank of Nigeria should make policies that will encourage the manufacturing sector to make more saving in the country. Finally, Central Bank of Nigeria should take a critical look at the macroeconomic policy to regulate it effectively to the reduce the inflation level in the country to enhance the growth of the manufacturing sector.
TABLE OF CONTENTS
Title
Page i
Declaration
ii
Certification
iii
Dedication
iv
Acknowledgements
v
Table
of Contents vi
List
of Tables ix
Abstract x
CHAPTER 1:
INTRODUCTION 1
1.1.
Background of the Study 1
1.2 Statement
of the Problem 3
I .3. Objectives
of the Study 5
I .4. Research
Questions 6
I .5. Research
Hypotheses 6
I .6. Significance
of the Study 6
I .7. Scope
of the Study 8
I .8. Limitations of the Study 8
CHAPTER 2:
LITERATURE REVIEW 9
2.1. Conceptual
Framework 9
2.1.1. Concept
of commercial banks credit 9
2.1.2. Effect
of lending rate in manufacturing output in Nigeria 11
2.1.3. Effect
of inflation in manufacturing sector output in Nigeria 12
2.1.4. Overview
of manufacturing sector output in Nigeria 13
2.1.5. Loan and
advance 15
2.1.6. Saving
deposit 16
2.2. Theoretical
Framework 16
2.2.1. The
loannable funds theory of interest rate 16
2.2.2. Neo-classical
growth theory 17
2.3 Empirical
Review 18
2.3.1 Summary
of empirical review 37
2.4.
Gap in the Review of the Related
Literature 47
CHAPTER 3:
METHODOLOGY 48
3.l. Research
Design 48
3.2. Sources
of Data 48
3.3. Model
Specification 48
3.4. Description
of Research Variable 49
3.5. Estimation
Technique 51
CHAPTER 4: RESULTS
AND DISCUSSIONS 53
4.1 Results 53
4.1.1 Descriptive
Analysis 54
4.2 Test
for Stationarity 56
4.3. Johansen
Co-Integration Analysis 57
4.3.1 Vector
error correction mechanism (VECM) 59
4.3.2 Diagnostic
tests for the VECM model 61
4.4. Discussion of Result 63
CHAPTER
5: SUMMARY, CONCLUSION AND RECOMMENDATIONS 65
5.1 Summary
of Findings 65
5.2. Conclusion
65
5.3. Recommendations
66
5.4. Contribution
to Knowledge 67
References
Appendix
LIST OF TABLES
2.1:
Summary of empirical review 37
4.1 Aggregate
data used for the analysis (1990 — 2021) 53
4.2 Descriptive
analysis 54
4.3 Summary
of ADF test Result 56
4.4 Johansen
co-integration analysis 57
4.5 Vector
error correction mechanism (V ECM) 57
4.6 Diagnostic tests for the V ECM 58
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
The manufacturing sector in Nigeria
remains a key driver of economic growth. Its output is driven largely by
monetary policy actions, especially benchmark of lending rate, loans and
advances allocated to the sector by banks, inflation rate and commercial
savings deposit from the sector. Precisely, an appropriate lending rate remains
vital for achieving improved manufacturing sector output in Nigeria. High
lending rate increases cost of borrowing, retards domestic investment, diminish
aggregate demand, increase unemployment, weaken economic growth and discourages
manufacturers from acquiring bank loans and advance (Okafor, Ogbonna and Anaemena, 2020).
Manufacturing sector plays a vital
role in Nigeria economy and has many dynamic benefits essential for economic
transformation in the country. The manufacturing sector is responsible for the
production of goods and sustainable growth in Nigeria and as a result of this,
the manufacturing sector has been treated as a leading sector in Nigeria
economy. Over the years, manufacturing sector has contributed in boosting the
gross domestic product in Nigeria, for instance in the area of creation of
employment, improving per capita income of citizen in the Nigeria etc. It also
broadens the way to improve the economy with a significant faster way by
creating a connection among many other sectors of the Nigeria economy
(Aigbomian and Mamudu, 2020). According
to Aigbomian and Mamudu, (2020) manufacturing sector significantly improves
Gross Domestic Product (GDP) in Nigeria.
Hence, it is assume that
commercial banks credit may have serious effect on manufacturing
sector output in Nigeria. Ademu, Dabwor and Ezie, (2019) defined commercial
banks credit as a process where a bank provides loan or advance to a single
borrower or group of individual or client. It is believed that commercial bank
credit contributes significantly to manufacturing sector output in Nigeria.
Most commercial banks credit granted to the manufacturing sector in Nigeria are
accompanied with collateral that enforces repayment so as to avoid default by
borrowers. The impact of commercial
banks credit on the development of the manufacturing sector cannot be
overemphasis. According to Aminu, Raifu
and Oloyede, (2019) granting of bank credit by bank managers to the
manufacturers in the sector has continued to be of immense support to the
growth of the sector. This commercial banks credit is expected to improve
investments and enhance production of good and service in the sector and in turn
impact positively on the growth of the manufacturing output in emerging market
economy (Akujuobi and Chima, 2013). Similarly,
Andabai and Eze, (2018) opines that manufacturing sector creates investment capital at a faster
rate than any other sector of the Nigeria economy while promoting wider and
more effective linkages among different sectors. The Nigerian government has
introduced various strategies to boost the sector such as import substitution
strategy, export promotion strategy, the introduction of the bank of industry
to induce credit facility to the sector and the National Economic Empowerment
Development Strategy (NEEDS).
Statistically, record shows that over
the years, commercial banks in Nigeria have been granting credit to the
manufacturing sector of the economy. For instance in 1990, ₦7.88
billion was granted to manufacturing sector and manufacturing sector output
was ₦1,670.73 billion, also in 1995,
₦58.09 billion was granted to manufacturing sector while manufacturing
sector output was ₦1,670.72
billion, in 2000 was ₦141.29 billion
while manufacturing sector output was
₦1,505.66 billion. In 2005 was ₦353.04 billion while manufacturing
sector output was ₦2,350.99 billion. In 2010 was ₦987.64 billion while
manufacturing sector output was ₦3,578.64 billion. In 2015 was ₦1,736.19
billion while manufacturing sector output was ₦6,586.62 billion. In 2016 was
₦2,215.74 billion while manufacturing sector output was ₦6,302.23 billion. In
2017 was ₦2,171.37 billion while manufacturing sector output was ₦6,288.90
billion. In 2018 was ₦2,230.15 billion while manufacturing sector output was
₦6,420.59 billion. In 2019 was ₦2,622.54 billion while manufacturing sector
output was ₦6,469.83 billion and in 2020 was
₦3,191.37 billion was granted to manufacturing sector while
manufacturing sector output was
₦6,291.59 billion and in 2021,
₦3,652.82 billion was granted to manufacturing sector while
manufacturing sector output was
₦6,172.45 billion respectively, these statistics laid claim to the fact that over the years
commercial banks in the country have contributed significantly to the growth of
manufacturing sectors in Nigeria (CBN, 2020).
Furthermore, in recognition of these
potential roles of the manufacturing sector in the Nigeria economy, successive
governments in Nigeria have continued to articulate policy measures and
programme to enhance manufacturing sector output in the country. Hence, the
study will examine the effect of commercial banks credit on manufacturing
sector output in Nigeria. The study will cover from 1990 to 2021.
1.2.
STATEMENT OF THE PROBLEM
There has been a growing concern on
the decline of the output of the manufacturing sector in Nigeria economy in
recent years, despite the government’s fiscal and monetary policies to improve
the fortunes of the sector. This might be in view of the fact that it has been
generally acclaimed, through the kaldor’s first law, that manufacturing sector
is regarded as the engine of growth of any economy (Libanio, 2017). In spite of
continuous regulation of fiscal and
monetary policies to attract credits to the manufacturing sector, the Nigerian
and manufacturing sector has remain
unattractive for commercial banks loan
and advance (Ogar, Nkamare and
Effiong, 2019). For instance, as indicated in Central Bank of Nigeria (CBN
report, 2020), almost throughout the regulatory era, commercial banks loans and
advances to the manufacturing sector deviated persistently from prescribed
minima and it is assumed to have adverse effect on the manufacturing sector
output in Nigeria.
Also,
in Nigeria, there is growing disaffection among investors and entrepreneurs in
the manufacturing sector on the current high cost of production, which has
constrained their efforts at creating wealth and reducing unemployment in the
country. Globally, Nigeria ranks 52nd and 170th on both the ease of getting
credit and doing business, respectively, out of 189 economies examined by the
World Bank in its Ease of Doing Business publication (2020). For instance, the
maximum lending rate increased from 24.6 percent in 2012 to 24.9 percent in
2013 and further rose to 25.7 percent in 2014 and rose to 26.71 percent in 2015
and lastly in 2020 the lending rate was 28.64. However, it is assume that poor performance of the
manufacturing sector output over the
years has been attributed to high bank
lending rates in Nigeria which is
assumed to have adverse effect on the
manufacturing sector output (Emmanuel, Olupeeka, and Adeyinka, 2020)
Furthermore, inflation has remain serious issue for policy makers and
economists in Nigeria. This is because manufacturing sector in Nigeria depend
basically on imported materials for their production and with current inflation
rate of 18.2% . It is assume that inflation has an adverse effect on manufacturing
sector output in Nigeria (Daniel, Oluwatobi, Taiwo, and Julius, 2017). In addition, the issue
of high inflation rate and
lending rate experienced by the
manufacturing sector in Nigeria is also
assume to affect negatively the aggregate savings of the manufacturing sector of the economy.
Previous works on this topic have not had a consensus in
their results on bank credit and the manufacturing sector output in the Nigeria
economy.
Furthermore, there is no consensus among the scholars on
the effect of bank
credit on manufacturing sector output in Nigeria.
Previous empirical studies have produced mixed result on the relationship of
the subject. The studies by Effiong and Ekong (2022), Ashiru ,Lukman and
Anas (2021), Sunday (2018) and Lawrence (2015) supported the view that
bank
credit positively and significantly impacted on the manufacturing sector outputs,
while studies of Chukwuani and Ezeude (2018), Imoughele
and Ismaila (2013) negate the earlier view and held that bank credit has no
significant impact on the manufacturing sector output. However, Okere and Nwaneto (2020) and Adebanjo, Oluwasegun, Adegbola, Festus ,
Egbide, Bamisele, Moyinoluwa, and
Eluyela (2019) were of the opinion that
bank
credit exerted negative impact on the manufacturing sector output. Given the
varying results produced from different studies of previous scholars in Nigeria
is a problem of concern. Hence this study was designed
to examine the impact of bank credit on manufacturing sector outputs in
Nigeria.
1.3. OBJECTIVES OF THE STUDY
The broad objective of the study was
to examine the impact of bank credit on manufacturing sector output in Nigeria.
The specific objectives were;
i.
To ascertain the impact
of commercial banks loan and advance on manufacturing sector output in Nigeria
ii.
To determine the impact of
commercial bank lending rate on manufacturing sector output in Nigeria
iii.
To examine the impact of
commercial banks savings deposit on manufacturing sector output in Nigeria
iv.
To evaluate the influence
of inflation rate on manufacturing sector output in Nigeria
1.4.
RESEARCH QUESTIONS
i.
In what ways have
commercial banks loan and advance impacted
on manufacturing sector output in Nigeria?
ii.
To what extent does
commercial bank lending rate impact on manufacturing sector output in Nigeria?
iii.
How does commercial banks
savings deposit contributed to
manufacturing sector output in Nigeria?
iv.
To what magnitude has
inflation rate influenced the level of manufacturing sector output in Nigeria?
1.5.
RESEARCH HYPOTHESES
The following hypotheses stated in
null form will be tested;
H01:
Commercial banks loan and advance has no significant impact on manufacturing
sector output in Nigeria
H02: commercial
bank lending rate has no significant impact on manufacturing sector output
in Nigeria
H03:Commercial
banks savings deposit have not significantly contributed to manufacturing
sector output in Nigeria.
H04: Inflation
rate has no significant influence on manufacturing sector output in Nigeria
1.6.
SIGNIFICANCE OF THE STUDY
The
study will examine the effect of bank credit on manufacturing sector output in
Nigeria. The study will be of immense benefit to the following group;
Manufacturing industries
The
findings and recommendations of the study, when accessed, will assist
shareholders in manufacturing industries in making proper decision in area to
source their credit and proper utilization of the credit.
Commercial Banks
The
findings and recommendations of the study will assist commercial banks managers
in knowing impact of credit to the manufacturing sector of Nigeria.
Government:
The
findings and recommendations of the study will assists government in
implementing policies that will turn around the present state of decay of manufacturing
sector in the country and also help in formulating policies that
will help the manufacturing sectors in handling issue of credit.
The economic planner:
Economic
planner will utilizes the result of the study in restoring the safety and
soundness of the manufacturing sector of Nigeria. Far-reaching negative effects
on the national economic well-being caused by poor economic policies of the
past and present administration, corruption, misappropriation of money
allocated to development of manufacturing sector in
the country will be minimized by adopting the recommendations of the study that
will be made by the researcher.
Researchers and Students
Researchers
and students interested in a similar field of study in future will find this
work useful conceptual guide and reference material.
1.7. SCOPE OF THE STUDY
The
study examined the impact of bank credit on manufacturing sector in
Nigeria. The study covered from 1990 to
2021. The choice of 1990 was predicated on the fact that it was the year when
Nigerian Deposit Insurance Corporation was established. The NDIC further
instilled confidence to and in Banks. Also availability of data for this study
and policy of the past and present government in enhancing the production
capacity of the sector were other factors that influenced the choice of the
study period.
1.8.
LIMITATIONS OF THE STUDY
The
major limitation of the research work was the challenge of measurement error
associated with time series secondary data. In the effort to overcome this
challenge, appropriate analytical techniques used by previous researchers with
similar challenge was employed.
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