The ongoing financial crisis has reinforced the importance of capital in the industrial development and economic growth of a country. In the last two years, industries have closed down owing to lack of capital occasioned by the global financial meltdown. From America, London, other European countries, Asia and Africa, governments have had to intervene in other to bail out some ailing industries and forestall total collapse of the economy. These show the importance of credit either from bank or any other means to industries.
Recognizing the importance of capital in economic growth, Mackinnon and Shaw (1973), outlined the procedures for strengthening the financial sector of an economy so as to enable it play the all important role of providing capital for industrial development. Among the basic explanations for this is that the financial sector serves to reallocate funds from the supply side, given their investment opportunities, to the demand side with a shortage of funds. Thus, an economy with well-developed financial institutions will be better able to allocate resources to industries that yield the highest returns.
The manufacturing sector is a catalyst to the modern economy and has a many dynamic benefits that are crucial for economic transformation, (Loto, 2005). The manufacturing sector is a leading sector. It helps to increase productivity in relation to import substitution, export expansion, creating foreign exchange earning capacity, raising employment and per capital income which according to Loto, (2005), widens the scope of consumption in dynamic patterns. Ogwuma, (1995) asserts that the manufacturing sector promotes the growth of investment at a faster rate than any other sector of the economy as well as wider and more efficient linkages among different sectors.
Table of Contents
1. INTRODUCTION
2. LITERATURE REVIEW
3. STYLIZED FACTS ABOUT BANK CREDIT AND INDUSTRIAL GDP IN NIGERIA
4. EMPIRICAL METHODOLOGY AND ANALYSIS OF RESULTS
4.1 THEORY
4.2 THE MODEL
4.3 THE METHODOLOGY
4.4 Empirical Results
4.4.1 Unit Root Results
4.4.2 Co-integration Tests Results
4.4.3 Error Correction Models
4.5 ANALYSIS OF RESULTS
4.6 Test for Structural Stability
5. SUMMARY AND CONCLUSIONS
Objectives and Research Themes
This study aims to examine the impact of bank credit on the industrial development of Nigeria, utilizing annual time series data from 1970 to 2008 to determine how financial sector resource allocation influences industrial growth and to inform future economic policy.
- The relationship between financial sector credit allocation and industrial output.
- The role of the manufacturing sector as a catalyst for economic transformation.
- Evaluation of interest rate regimes and their effect on industrial productivity.
- Analysis of institutional support mechanisms like the Bank of Industry (BOI) and NERFUND.
- Application of endogenous growth models to explain long-term industrial performance.
Excerpt from the Book
INTRODUCTION
The ongoing financial crisis has reinforced the importance of capital in the industrial development and economic growth of a country. In the last two years, industries have closed down owing to lack of capital occasioned by the global financial meltdown. From America, London, other European countries, Asia and Africa, governments have had to intervene in other to bail out some ailing industries and forestall total collapse of the economy. These show the importance of credit either from bank or any other means to industries.
Recognizing the importance of capital in economic growth, Mackinnon and Shaw (1973), outlined the procedures for strengthening the financial sector of an economy so as to enable it play the all important role of providing capital for industrial development. Among the basic explanations for this is that the financial sector serves to reallocate funds from the supply side, given their investment opportunities, to the demand side with a shortage of funds. Thus, an economy with well-developed financial institutions will be better able to allocate resources to industries that yield the highest returns.
The manufacturing sector is a catalyst to the modern economy and has a many dynamic benefits that are crucial for economic transformation, (Loto, 2005). The manufacturing sector is a leading sector. It helps to increase productivity in relation to import substitution, export expansion, creating foreign exchange earning capacity, raising employment and per capital income which according to Loto, (2005), widens the scope of consumption in dynamic patterns. Ogwuma, (1995) asserts that the manufacturing sector promotes the growth of investment at a faster rate than any other sector of the economy as well as wider and more efficient linkages among different sectors.
Summary of Chapters
INTRODUCTION: Provides the contextual background on the importance of capital for industrial growth and establishes the research gap regarding the impact of bank credit on Nigeria's industrial sector.
LITERATURE REVIEW: Reviews existing theories and empirical studies on credit access, financial liberalization, and their influence on industrial firm performance.
STYLIZED FACTS ABOUT BANK CREDIT AND INDUSTRIAL GDP IN NIGERIA: Presents historical data and trends regarding credit allocation to Nigerian industrial sectors and their contribution to GDP.
EMPIRICAL METHODOLOGY AND ANALYSIS OF RESULTS: Details the theoretical endogenous growth framework, the econometric model, stationarity tests, and the subsequent analysis of results using Error Correction Models.
SUMMARY AND CONCLUSIONS: Summarizes the findings regarding the impact of bank credit on industrial development and provides policy recommendations for a better business environment.
Keywords
Bank credit, Industrial development, Nigeria, Endogenous growth model, Manufacturing sector, Financial sector, Interest rate, Capital allocation, Time series analysis, Error correction model, Economic growth, Investment, Productivity, Structural adjustment, Financial liberalization.
Frequently Asked Questions
What is the core focus of this research?
The research primarily investigates the influence of bank credit on industrial development in Nigeria, specifically seeking to quantify the impact of financial resource allocation on industrial output.
Which theoretical framework does the study employ?
The study is anchored on the endogenous growth model proposed by Romer (1986), which emphasizes the role of capital and human capital in driving long-term economic growth.
What is the primary goal of the study?
The primary goal is to provide empirical evidence on the relationship between bank credit and industrial development to better inform government economic policy.
Which methodology is used to analyze the data?
The study uses annual time series data (1970–2008), conducting Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests, followed by the Johansen co-integration approach and Error Correction Models (ECMs).
What does the empirical analysis cover?
The analysis includes an examination of stationarity, co-integration, the speed of adjustment toward long-run equilibrium, and the structural stability of the estimated regression parameters.
What are the key themes of the research?
Key themes include the importance of credit for industrial growth, the effectiveness of the Nigerian financial sector, the impact of interest rates, and the role of institutional support for medium and large-scale enterprises.
How is the speed of adjustment between short and long run interpreted?
A higher coefficient in the error correction term indicates a faster speed of adjustment from short-term disequilibrium errors back to the long-run equilibrium path.
What significance do the CUSUM and CUSUMSQ tests have?
These tests are utilized to verify the stability of the model's parameters, ensuring that the estimated short-run and long-run dynamics remain within critical bounds over the study period.
What is the conclusion regarding bank credit in Nigeria?
The study finds that commercial bank credit has a significant impact on industrial development but suggests that success depends on more than just credit availability; other factors like infrastructure and political stability are critical.
- Quote paper
- Damian Nwosu (Author), 2011, The Impact of Bank Credit on Industrial Development of Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/229473
