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This study examined the effect of bank credits on private domestic investment in Nigeria for the period 1980 – 2019. The objectives of the study are to; examine the impact of bank credits on private domestic investment in Nigeria. Determine whether there are structural breaks on bank credits and private domestic investment existing in Nigeria during the period of the study and ascertain the shock impact of fluctuation in bank credits on private domestic investment growth in Nigeria from 1980 – 2019. Secondary time series data were used to carry out the empirical analysis. The study employed Vector Error Correction Model (VECM), Chow test, impulse response analysis in VAR model, Augmented Dickey Fuller (ADF) and Philips-Perron (PP) tests, co-integration test and Granger Causality approach. With the above econometric and statistic techniques conducted, it was observed that bank credit to private sector do have significant impact on private domestic investment in Nigeria. There is significant structural breaks on bank credit and private domestic investment existing in Nigeria during the period of the study. Fluctuations in bank credits does not significantly affect shock to private domestic investment growth in Nigeria during the period of study 1980 – 2019. The results revealed a bi-directional and directional nature of causality relationship between the variables in the model. These empirical results do exhibit evidence of instability from the results estimated which implies the presence of structural breaks that occurred during this period of 1990 – 2000. One per cent increase in credit to private sector (CPS), interest rate (INTR) and public investment (PUI) in the long run will lead to (7%, 4% and 16%) increase in private domestic investment (PDI) respectively in Nigeria during the periods of the study. Meanwhile, one per cent increase in inflation rate (IFR) and exchange rate (EXCR) in the long run will lead to (9% and 5%) decrease on private domestic investment (PDI) respectively in Nigeria during the periods of the study. Based on these findings, the study recommended: direct manipulation of interest rates other than money supply should be a better monetary policy tool to impact on the real sectors private domestic investment (PDI) of the economy. More emphasis should be placed on the use of interest rate, inflation rate and exchange rate since it can significantly influence investment in Nigeria. The country should learn how to develop credit policy with an average and attractive interest rate that will encourage investors to borrow money and as well give access to lenders (banks) to get their borrowed money back as at when due. The Nigerian government should create an enabling environment by ensuring security for the growth of the economy because no economy can grow her investment in the presence of insecurity. This gives room for instability and frustration in investment and economic growth.


Title Page                                                                                                                                i

Declaration                                                                                                                             ii

Certification                                                                                                                           iii

Dedication                                                                                                                              iv

Acknowledgements                                                                                                                v

Table of Contents                                                                                                                   vi

List of Tables                                                                                                                          vii

Abstract                                                                                                                                  viii


1.1  Background to the Study                                                                                            1

1.2  Statement of the Problem                                                                                           11

1.3  Objectives of the Study                                                                                              14

1.4  Research Questions                                                                                                    14

1.5  Research Hypotheses                                                                                                  15

1.6  Significance of the Study                                                                                           15

1.7  Scope of the Study                                                                                                      16

1.8  Limitations of the Study                                                                                             17


2.1 Conceptual Review                                                                                                           18

2.1.1 Bank credits                                                                                                                   18

2.1.2 Concept of private domestic investment                                                                       21

2.1.3 Bank credits and private domestic investment                                                              23

2.1.4 Determinants of private investment                                                                              25

2.1.5 Determinants of private investment in developing countries                                        36

2.1.6 Efficiency gains                                                                                                             44

2.1.7 Types of bank credits                                                                                                    55

2.1.8 Importance of bank credit                                                                                             58

2.1.9 Bank credit analysis                                                                                                       59

2.1.10 Criteria for choosing a bank for credit                                                                        64

2.1.11 Bank credit policies and procedures                                                                            67

2.1.12 Bank consolidation program of 2004                                                                          68

2.1.13 Financial intermediation roles of deposit money banks                                              70

2.1.14 Banks as delegated monitors                                                                                       72

2.1.15  Banks as liquidity providers                                                                                       76

2.1.16  Bank credit and economic growth                                                                              78

2.2 Theoretical Literature Review                                                                                          80

2.2.1 Theories of credit market                                                                                              80 Neo-classical                                                                                                               80 Credit rationing theory                                                                                               81 Neo-classical theory of credit market                                                                        82 Theory of financial intermediation                                                                            83

2.2.2 Theories of investment                                                                                                  83 Investment multiplier theory                                                                                      83 The Principle of acceleration theory                                                                          84 The financial theory of investment                                                                             85 Jorgenson's neoclassical theory of investment                                                           86 Schumpeterian development theory                                                                           87 Tobin's q theory of investment                                                                                   90 Financial regression hypothesis                                                                                  91

2.3 Empirical Literature Review                                                                                            93

2.4 Summary of Empirical Review                                                                                        126

2.5 Identified Gap in Empirical Literature                                                                             140


3.1 Research Design                                                                                                               142

3.2 Theoretical Framework                                                                                                    142

3.3 Model Specification                                                                                                         145

3.3.1 A priori expectation                                                                                                      147

3.4 Estimation Procedure                                                                                                       148

3.4.1 Unit root test                                                                                                                  148

3.4.2 Serial correlation test                                                                                                     149

3.4.3 Impulse response analysis in VAR models with near unit roots

            identified by long-run restrictions                                                                              149


3.4.4 Co-integration test                                                                                                         150

3.4.5 Granger causality test                                                                                                    150

3.4.6 The Chow test estimation procedures                                                                           151

3.4.7 Stability test                                                                                                                   152

3.5 Sources of Data                                                                                                                152

3.6 Description of Variables                                                                                                   153


4.1 Pre-Estimation Test Results                                                                                             158

4.1.1 Unit root test analysis                                                                                                    158

4.1.2 Co-integration test                                                                                                         159

4.2 Post Estimation Test Results                                                                                            161

4.3 Discussion of Results                                                                                                       166

4.6 Evaluation of Research Hypotheses                                                                                 180


5.1 Summary of Findings                                                                                                       184

5.2 Conclusions                                                                                                                      186

5.3 Policy Recommendations                                                                                                 187

5.4 Contribution to Knowledge                                                                                              188

5.5 Suggestion for Further Studies                                                                                         189

            References                                                                                                                  190

            Appendices                                                                                                                 202





4.1 Unit root test                                                                                                                     158

4.2 Co integration test                                                                                                            160

4.3 Vector error correction estimates                                                                                     161

4.4 VEC residual serial correlation LM tests                                                                         170

4.5 VEC residual heteroscedasticity tests                                                                               171

4.6  Ramsey reset test of post diagnostic test                                                                         171

4.7 Pairwise granger causality tests                                                                                        172

4.8 Chow Test Results showing three sub periods                                                                 174








The nature and stability of domestic investment have attracted enormous debate in economic literature, particularly in advanced market economies. The preponderance of studies on this subject includes Uremadu (2006), Adegbite & Owulabi (2007); Raphael (2020) where they argued that although foreign direct investment (FDI) is beneficial to host countries by speeding up the process of economic growth and development, the multiplier effect of domestic investment is greater than that of FDI. In other words, developing countries should depend greatly on domestic investment rather than foreign direct investment (FDI). This is because, borrowing from outside is not a proper strategy for growth and development since it does not only have adverse effect on the balance of payment as these loans will be serviced in the future with the use of domestic resources, but it equally carries a foreign exchange risk such as devaluation of their currency which is one of the specific conditions for borrowing from International Monetary Fund (IMF). Hence, domestic investment through capital formation is not just paramount but serves as a prerequisite for the geometric acceleration of growth and development of every economy as it provides domestic resources that can be used to fund the investment effort of the economy.

Investment is categorized into public and private sector investments. Private sector investment refers to investment by individuals, people or firms as opposed to the government as an entity which is referred to as public sector investment. Economic theories have shown that some critical factors influencing private sector investment are those of bank credit to the private sector, the cost of capital, the rate of return, public sector investment, exchange rate etc. Among these critical determinants of private sector investment is private sector credit. Private sector credit refers to financial resources provided by deposit taking corporations, except central banks, to the private sector. These financial resources made available to the private sector are regulated by credit policies. Credit policies involve imposition of quantitative ceiling on the overall and/or sectoral distribution of banking system loans and advances by monetary authorities (Anyanwu, 1993).

The broad objectives of credit policies in Nigeria, over the years, have been the enhancement of availability, reduction of cost and access of credit to the private sector as well as the stimulation of growth in the productive sectors of the economy. The study by Okafor (2011), established that credit delivery constitutes the primary platform through which banks promote the social and economic endeavours of customers. Credit policies therefore, constitute key instruments relied upon by monetary authorities to promote national economic growth and balanced development.  Accordingly, bank credit is the most important source of investment financing among private enterprises in developing countries, Nigeria inclusive. The volume of and access to bank credit available for private sector borrowers have direct influence on private investment activity. The portion of total credit in the economy allocated to private sector was 66.7 percent in 1980, 59.7 percent in 1981 and 52.1 percent in 1982. Afterward credit to private sector of the Nigerian economy shrunk. It reduced to 28.9 percent in 1986 and 34.0 percent in 1993, but increased to 81.8 percent in 2016, 90.2 percent in 2017 before decreasing to 82.3 percent in 2018. The availability of bank credit for private investment and access to available bank credit by private sector operators in Nigeria had been greatly constrained by credit to the government and high interest rate prevalence during market-based monetary policy regime (Selçuk and Alper, 2020; Ekpo, 2016). In Nigeria and elsewhere, the aggregate bank credit is always allocated to both private sector and public sector. However, studies have shown that credit to the private sector has more significant effect on economic activities than credit to the public sector (George & Nneka, 2019; Idih Oluwagbemigun & Adewole, 2020).

Private domestic investment involves an increase in human, social, technological and physical capital of a nation, brought about by the residents of the country. It is often referred to as gross private investment. The private domestic investment includes all expenditure made by private citizens of a nation for the acquisition of capital goods and services. It is usually measured cither as aggregates, growth rates or as ratios to the gross private domestic product (lyoha, 1998 cited in Nwokoye, Metu & Kalu, 2015). Meanwhile, private domestic investment has been described as one of the major contributors to economic growth in any economy. This is because, through investment, new technology can be adopted, employment opportunities can be created, incomes can grow and living conditions of the people can improve and eventually, leading to eradication of poverty (Naftaly, 2017). Consequently, the need to re-focus development policies towards private domestic investment in developing countries has been of major emphasis of many analysts of recent, to help boost economic growth and reduce poverty. This means that private investment is a crucial pre- requisite for economic growth as it allows entrepreneurs to set economic activities in motion by bringing resources together to produce goods and services.


In most Sub-Saharan African nations, the major concern for private investment is that the level of private domestic investment is so low, compared to developed nations. This was attributed to a variety of factors; and one of the critical factors include the relatively small size of the formal private sector, especially in modernization and industrialization, and the difficulty in gaining access to funds for investment. Another factor is that many Sub-Saharan African countries are characterized by high levels of economic and political instabilities, which discourage both private domestic and foreign investments, then exchange rate, interest rate, exchange rateand publc investment (Naftaly, 2017). Unarguably, improved financial environment is one of the greatest drivers of economic development. It stimulates the level of investment and income as well as enhances manufacturing sector capacity utilization of a nation. The ultimate effect is poverty reduction, increased per capita income, and by extension, economic growth (Amanu, 2020; George & Nneka, 2019; Vincent, Oluchukwu, Nnaemeka & Francis, 2014). The importance of private domestic investment for economic development of nations recently cannot be over-emphasized. This is primarily because of the adaptability, flexibility and regenerative tendencies of the private sector to propel economic development.

The private sector is conceived as the bedrock of industrialization based on its expected impact and potential contributions towards a diversified production base cannot be overemphasised. Its accelerative effect tends to gear towards achieving macroeconomic objectives such as sustainable economic growth, full employment, equitable income distribution, balance of payment equilibrium, development of local technology as well as diffusion of management skills and stimulation of indigenous entrepreneurship (Vincent, Oluchukwu, Nnaemeka & Francis, 2014). Roles of private sector becomes very strong since most developing nations, especially in Africa have for several decades tried public sector driven economic development with little or no success. It was found that the return on the huge public investment was negative as a result of monumental waste, gross inefficiency in operations, mismanagement of resources and worst of all they became conduit pipes for personal enrichment of government officials (Onodugo, 2013).

The attempt to strengthen the private sector by the government led to the implementation of financial liberalization policy in 1986 as part of the Structural Adjustment Programme (SAP). The Structural Adjustment Programme (SAP) was an economic reform programme aimed at restructuring the economy and averting economic collapse. The key objectives of SAP were to lay the basis for sustaining noninflationary or minimal inflationary growth and improve the efficiency of the public and private sectors. Therefore, the financial liberalization (reform) policy entails the provision of an appropriate legal and regulatory framework for effective private participation in the economy. 

The country also adopted a medium-term strategy, called the National Economic Empowerment and Development Strategy (NEEDS) in 2004, as a response to the numerous challenges facing the nation. Equally, the government approved vision 20-2020 for transforming the country into a modern economy, among the 20 leading countries in the world by 2020 (The Times of Nigeria 2008). The objective of the vision 20-2020 is in line with various studies and projections by Goldman Sachs that Nigeria will be the 20th and 12th largest economy of the World by 2025 and 2050 respectively ahead of Italy, Canada, Korea, among others(Skyscraper City 2006), and Africa biggest economy by 2050 (Business Economy, 2008). The vision 2020 is to be realized through the growth of the private sector. 

However, as Solanke (2007) argued, the state of the private sector, its characteristics, disposition and resilience would determine in substantial respects how far the lofty objectives of repositioning Nigeria’s economy can be achieved. Accordingly, the Nigeria government has also adopted the public private partnership (PPP) strategy. PPP schemes are designed to lead to dramatic improvement in quality, availability and cost-effectiveness of services. These include Service Contracts; Management Contracts; Leases; Build, Operate and Transfer; and Concessions. As a compliment to the various programmes of the government to accelerate the rate of growth of the economy, it has been suggested that the level of dependence on the oil sector should be reduced, while concentration should be on the manufacturing, energy, transport and agriculture (Papka, Innocent & Enam, 2019; Hale, 2002). This means that efficient allocation of funds to the real sector has high tendency of improving the economy.

In the mid-80s, the direct control of credit allocation and regulated interest rate structure were used to channel banks credit to the real sectors of the economy by that arrangement, banks were statutorily required to allocate most of the loan-able funds to the key sectors like agriculture, manufacturing, solid minerals, housing at low rate of interest which would result in high investments and outputs and invariably growth of the domestic economy, however, the weakness that characterized the policy in September 1986 to eliminate inefficiency and enhance effective mobilization and utilization of resources which ultimately would translate to a sound and stable banking system( Agu, 2015). The Central Bank of Nigeria, after the deregulation of the financial sector, has made concerted effort via several bank reforms which focused on effective surveillance and prudential guidelines, more stringent procedure for licensing and increaseing the capitalization base among others to ensure a sound and stable banking system capable of providing effective intermediation that would stimulate growth, encourage medium and long-term lending to the real sectors capable of diversifying the productive base of the economy (Iwedi & Igbanibo 2015).

It would be recalled that the bank crisis in Nigeria in the 1990s was associated with sharp increases in interest rate, large currency depreciation and devaluation and lasting decline in the supply of credit. It is worth knowing that access to bank credit allows firms to increase production, output and efficiency and in turn increases the profitability of banks through interest earned and improves economic growth (Adeniyi 2015). Abubakar and Gani, (2013) also agreed that the real sector in Nigeria still face difficulty in the accessibility of financial resources especially from the commercial banks that hold about 90 percent of the total financial sector assets and high rate of interest rate causing many firms to avoid bank-borrowing. Other formidable financing challenges include concentration of bank credit to the oil and gas, communication and general commerce sectors to the disadvantage of the core real sectors such as agriculture and manufacturing sectors. Also, banks are more disposed to finance government financial need as almost 50 percent of their assets are tied up by government debt.

In Nigeria, private domestic investment is heavily skwed towards Micro, small and medium scale enterprises (SMES) which constitute the most dynamic and heterogeneous sub-sector in the Nigerian industrial sector (Nwokoye, Metu & Kalu, 2015). Between 1990 and 1995, SMES accounted for an average of 84 percent of the new jobs created in the country. Estimating the gross domestic product of the sector is very hard because of its scale and widespread informality. Policies formulated towards promoting SMES in the Nigerian economy majorly have three fronts including microfinance, changes in regulatory framework and business development services. Others include infrastructural development and childcare programmes for female workers (Nwokoye, Metu & Kalu, 2015).

Generally, SMES are acknowledged as the bedrock of industrial development of any country (Nnanna, 2003). Despite the numerous commodities produced by SMES, they provide veritable means of large scale employment as they are usually labour intensive. Similarly, they provide training grounds for entrepreneurs even as they generally rely more on the use of local inputs. Moreover, if well managed, SMES can turn into giant corporations of tomorrow. These contributions explain why commercial banks, governments and international agencies mobilize efforts towards the realization of sustainable industrial growth and the creation of mass employment through the rapid growth and development of SMES. According to Nwabude (2014), small and medium enterprises (SMES) provide an effective means of stimulating indigenous entrepreneurship, enhancing greater employment opportunities per unit of capital invested and aiding the growth of local technology. Adelaja (2005) opined that SMES account for more than 60 percent of all regional entrepreneurship and up to 50 percent of paid employment. Furthermore, Okonjo-Iweala (2005) strongly argued that SMES is an essential driver of economic growth and prosperity in a modern economy. It empowers the populace and provides greater possibilities for the use of available local raw materials and this goes a long way in encouraging vertical and horizontal linkages. The study further argued that from the World Bank to the tiny local government organizations, development interventionists have embraced domestic enterprises as the key to unlocking the potentials of stagnant economies and improving the livelihood of the poor.

However, in the less developed countries, Nigeria inclusive, a low level entrepreneurial ability is a strong factor responsible for the low rate of capital formation in the countries (Jhingan, 2003; and Metu & Nwokoye. 2014). They noted that less developed countries are characterized by small size of the market, lack of private property and deficiency in capital and funds. Firms in developing nations rely mostly on internal sources and informal credit markets for funds because their money and capital markets are not well developed. Consequently, long- term investments are discouraged. The role of capital in the growth of an economy cannot be over emphasized, since it facilitates the mobilization of the needed inputs for production of goods and services. Most entrepreneurs recognize that a well-organized money market is crucial for mobilizing domestic capital for short and medium-term investments. Lending is one of the most important services that banks render to their customers. It refers to a situation where banks grant credit facilities, loans and advances to individuals, business organizations as well as the government in order to facilitate investment and development activities (Nwokoye, Metu & Kalu, 2015). Lending, which may be on short, medium or long-term basis, is also a means of aiding the growth in aggregate output of a nation, thereby contributing toward the economic development of a country.

Banks are the formal financial intermediary machinery in any market-oriented economy. They are the most important savings, mobilization and financial resource-allocation institutions. Consequently, these roles make them an important phenomenon in economic growth and development because in performing their roles, banks have the potential, scope and prospects for allocating scarce financial resources to productive investments. Banks are not the only financial intermediaries in the economy but their widespread liabilities are the greatest and the most recognized.

In accepting demand and time deposits, banks differ from other financial intermediaries; in that, their liabilities are readily acceptable and are liquid since demand deposits are a medium of exchange and are in essence money. More so, the time deposits are very close substitute for currency and demand deposit. By comparison, the liabilities of non-bank financial intermediaries are not directly a medium of exchange nor are they perfect substitutes for it. This special role of the liabilities of the banks in the economy makes them a rather distinctive type of financial intermediary and makes a study of their behavior and reaction to monetary policy very essential.

Financial intermediation defined as the institution responsible for the mobilization of excess funds from the surplus-spending unit and channeling of funds to the economic activities of the deficit spending unit is an index for measuring the extent to which the financial sector of an economy is developed and alive to its responsibilities. A well-functioning banking system, by raising the spectrum of sources of finance for domestic entrepreneurs, play a critical role in allowing the investors source for long-term credit facilities knowing well that the greater the technological-knowledge gap between current practices and new technologies, the greater the need for external finance (Nwokoye, Metu & Kalu, 2015). In most cases, external finance is restricted to domestic sources. Thus, low level of financial intermediation limits potential entrepreneurs, especially if the arrival of a new technology brings with it the potential to tap not just domestic markets but export markets. Specifically, to take advantage of the new knowledge, domestic firms need to re-organize their structure, buy new machines and hire new managers and skilled labour. Although some domestic firms are strong enough to finance new requirements with internal funding, it is essential to understand that the spillovers for the host economy may critically depend on the extent of the development of domestic financial markets. This is because a well-developed financial intermediation enhances technological innovation, capital accumulation, and economic growth because well-functioning financial markets, by lowering costs of conducting transactions, ensure that capital is allocated to projects that yield the highest returns.

The extent of financial intermediation in Nigeria may be a decisive factor in determining the extent to which domestic investors have access to finance with which to begin and sustain their business enterprises; and also the extent to which these investors can access new techniques and methods of production. This is the crux of the matter and informs the basis for the present research as it sets out to determine if commercial bank credits have influence on private domestic investment in Nigeria.



Nigeria being a bank based economy relies heavily on bank ceredit for its financing needs, especially on domestic investment. Schumpeterian argue that innovation financed by bank credit expansion creates investment. Since investment is assumed to be financed by the creation of bank credit, it increases incomes, prices and helps to create a cumulative expansion throughout the economy (Akinleye, Ojenike & Afolabi, 2012). 

Indeed, in most African countries, Nigeria in particular, limited access to credit facilities has been the bane of private sectors. It has been for the most part, the major cause of widespread poverty and unemployment in developing countries. The vision of granting loans and advances that are focused on the priority sectors of the economy with the aim of stimulating entrepreneurship in the preferred sectors has been widely canvassed in many literature. In the opinion of Ojo (1992), direct bank credit has been in use in developing economies, especially where money and capital markets were less developed. In Nigeria, bank credits are often short-term loans which must be secured with collateral if the borrower has poor credit history. Bank credits have three main variants including loans, advances and overdrafts.

However, banks and government policies regarding credit administration to private sector in Nigeria are fraught with skepticism, inconsistencies and ineffectiveness. For instance, private domestic investment sector in Nigeria consists majorly of micro, small and medium sized businesses, which made the sector to lack basic requirements to raise commercial loans. Most of them lack basic business financial plan and documentation as well as the required collateral to attract loan and advances from commercial banks. Their credit history is even more doubtful, as they are known to divert credits to less economic yielding ventures. It is against this backdrop that commercial banks prefer to pay penalty imposed on it by the Central Bank of Nigeria, for not channeling loans to such sectors than to risk toxic loans to this very risky sector (Vincent, Oluchukwu, Nnaemeka & Francis, 2014).

Thus, banking business in Nigeria is quite risky and a lot of fear is being exercised in establishing bank branches in both rural and urban areas of the country, so as to exercise their ultimate purpose of existence; which is their ability to lend confidently and sufficiently; and to undertake risky but economically beneficial development oriented investments which rather depends crucially on profits being earned by depositors. Justifiably, about 65-70 percent of banks total revenue is derived from investment being loans granted by banks to their customers (James & Henry, 2015) It should be pointed out here, that those profitable business of banks are associated with several risks which may either be as a result of exogenous or endogenous factors including lack of adequate capital in banks, increasing rate of bad debts, inherent and sprawling fraud rate in the economy, meeting the security requirements by financial institutions and fluctuation of interest rates due to unstable level of inflation (James & Henry, 2015). Incidentally, private sector makes the desired effect in an economy when sustainable development is realized in areas of operational efficiency, volume of businesses and increased number of investors. These indices are only attainable when the financial sector provides desired credit facilities. Where the desired financial support is lacking, the operators in the private sector tend to only operate below optimum level. The resultant effect is stagnation in the economy as the public sector lacks the muscle to shoulder the burden alone.

Consequently, sustainable growth, full employment, equitable distribution of income, balance of payments equilibrium, development of local technology, diffusion of management skills and stimulation of indigenous entrepreneurship appear to have been eroded by limited access to credit facilities. In addition, the small and medium scale enterprises operations are characterized by inefficiency and ineffectiveness, resulting from banks and government policies inconsistencies and ineffectiveness in Nigeria.

Given the perceived importance of commercial bank credit in lubricating the engine of the economy through domestic investment in Nigeria, the government and Central Bank of Nigeria have evolved various measures that has increased the amount of credit to the private sector. For instance, credit to the private sector increased by 29.6% in 1988, 11.3% in 1998, a drastic increase of 88.6% in 2008 and 1.96% in 2018. Putting in perspective the level of growth in commercial bank credit with the level of domestic investment in the corresponding period revealed that domestic investment increased by 6.68% in 1988, 1.39% in 1998, a contraction of -2.6% in 2008 and an increase of 9.73% in 2018 (Central Bank of Nigeria, CBN 2019). This unfavourable scenario has become a source of worry to the policy makers and researchers

Furthermore, previous empirical works adopting different methodologies presented divergent views on the subject. The mixedbag of results has indicated that no consensus has been reached by different researchers on the impact of commercial bank credit on private domestic investment. For instance the works of Thuy, Anh and Diem (2020) in Vietnam, George and Nneka (2019) in Nigeria, Josephine, Emmanuel and Kofi (2018) in Ghana Emmanuel, Abiola and Anthony (2015) in Nigeria and Ghura and Goodwin (2010) in Asia, Sub-Saharan Africa and Latin America supported the view that commercial bank credit impacted private domestic investment. While the studies of Raphael (2020) in the Gambia, Chimere, Simplice, Kingsley and Patrick (2020) in West Africa Adelegan (2018) in Nigeria and Eric and Dawud (2016) in Ghana oppose the view. This lack of constitutes a serious problem.  It is against this background, that the study investigated the impact of bank credits on private domestic investment in the Nigeria's economy.


The broad objective of this study is to investigate the impact of commercial bank credits on private domestic investment in Nigeria. Specifically, the research focused on the following objectives. They are to:

i.          Examine the impact of commercial bank credits on private domestic investment in Nigeria.

ii.         Determine whether there are structural break effects on commercial bank credits and private domestic investment existing in Nigeria during the period of the study.

.iii.       Ascertain the shock impact of fluctuation in commercial bank credits on private domestic investment growth in Nigeria.


The research focused on the following research questions, they include:

i.          Do commercial bank credits have any impact on private domestic investment in Nigeria?

ii.         Is there any structural breaks effects on commercial bank credits and private domestic investment existing in Nigeria during the period of the study?

iii.        Does fluctuation in commercial bank credits significantly impact shock to private domestic investment growth in Nigeria?


This study is guided by the following null hypotheses:

i.          Commercial bank credits do not have significant impact on private domestic investment in Nigeria.

ii.         There is no structural breaks effects on commercial bank credits and private domestic investment existing in Nigeria during the period of the study?

iii.        Fluctuation in commercial bank credits does not significantly impact shock to private domestic investment growth in Nigeria.


The significance of this study is classified into the theoretical significance and practical significance. The theoretical significance deals with how the research will contribute to the pool of existing knowledge in the chosen field of study.

Practically, this research will be significant to commercial banks, monetary authorities, investors, policymakers, intellectuals, researchers and investment think-tanks whose responsibilities are to prescribe and suggest policy options to the government on the effects of bank credits to private sectors on macroeconomic objectives of nations by providing insightful knowledge and empirical evidence to guide actions. More so, the research will be beneficial to federal government itself as it will help to show the effectiveness of bank credits to private sector and its impact on macroeconomic stability in the economy. The study will also act as a guide and provide insight for future studies on the topic under consideration to the academia that may deem it necessary to improve their knowledge on this topic. Furthermore, the research will also educate the general public on various policies of the monetary authorities regarding its policy framework to improve bank credits to private sector in stimulating private domestic investment in the economy. It will also form an interesting reading material to those who may particularly want to expand their knowledge on the issue of bank credits and private domestic investment in Nigeria.


This research investigates the impact of bank credits on private domestic investment in Nigeria for the period 1980-2019. The choice of the period was predicated on the fact that it accommodated various important stage in the economy. This period marked a new era of monetary policy implementation in Nigeria with market friendly approach, deregulation of the financial sector, the SAP and post post-SAP eras in Nigeria. The SAP era, marked the period of financial sector reform in which the economy experienced financial liberalization policy. On the other hand, the post-SAP era further deepened the degree of financial liberalization in the country with various banking reforms, such as the bank liberalization era and bank consolidation era. Also, the availability of consistent data over the period under review influenced the choice of this period.  The choice of the scope is also made as a condition for the test of second order econometric test, in which it was acknowledged that a minimum of 40 years is a required number for the application of econometric packages in any time series study.

The key variable employed in the investigation is bank credits to private sector; basically to investigate its effect on private domestic investment in Nigeria. Other variables which the study is delimited to include; public investment, exchange rate and interest rate.



Conducting any reaserch work without limitations may not be possible and this research is no exception. The research work encountered and experienced some limitations such as measurement errors and choice of estimation methodology. On measurement error, given that the data was coming from a reliable source, relied on the general acceptance of the data. The choice of estimation methodology was carefully selected after due consideration of the limitations of other techniques, which was also able to reduce and overcome the effect of measurement errors, making the result more reliable and robust.


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