MODEL SPECIFICATION AND ANALYSIS OF BANK CREDIT

AN ANALYSIS OF BANKS’ CREDIT ON THE NIGERIAN ECONOMIC GROWTH (1992- 20013)

NIGERIA JOURNAL OF ECONOMICS, VOL.4, NO.1 54

The econometric model used for assessing the analysis of the data above in table 1 is a simple regression model. In order to achieve the stated objective, the model is hereby specified in line with the hypothesis that: H0: Bank credit has no significant impact on the growth of the Nigeria economy.

H1: Bank credit has a significant impact on the growth of the Nigeria economy.

The functional relationship is specified as: GDP = F (GADCE)

The econometric model of this functional relationship is given as: GDP = a0 + a1GADCE + U Where a0 = intercept, a1= parameter estimate, GADCE = growth of aggregate domestic credit to the economy, U = unexplained variable.

Given the assumed relationship, based on apriori reasoning between the Gross Domestic Product (GDP), the expected sign for the parameter estimate is: ∂GDP/ ∂GADCE = a1 > o

Thus, a positive relationship is expected between GDP and GADCE, which implies that the higher the aggregate credit of deposit money banks, the higher the gross domestic product.

The regression result is as follows: GDP = 1.764 + 0.0052GADCE SE = ( 3.818) (0.069) t* = ( 0.585) (0.746) tα/2 = 2.13 F* = 0.556 Fα = 4.54 R = 0.189 R2 = 0.036 

Result Interpretation

The parameter estimate a1, which is the productivity coefficient GADCE is low though it is positive. The low value can be attributed to a larger proportion of GADCE that goes to the government. Most government expenditures are on transfers’ payment with little impact on productivity. From the standard error S(a0) > ½ ( a0) and S(a1) > ½ (a1), all indicating that the standard error is statistically insignificant. The t-statistics shows that both a0 and a1 are statistically insignificant. Thus, the overall model is statistically insignificant as revealed by the low value of F-statistics. The coefficient of determination R2 shows that only 4% variation in GDP is caused by GADCE, which is too low. Thus, we accept the null hypothesis that a0 = a1 = 0 and reject the alternative hypothesis that a0 # a1 # 0. This means that the credit of deposit money banks had no significant impact on Nigeria’s GDP from 1992 to 2008. In order words, the variation in credit of deposit money banks cannot be used to forecast the values of Nigeria’s GDP.