Does Bank Financial Intermediation Cause Growth in Developing Economies: The Nigerian Experience

Abstract

Whether banks through their financial intermediation activities (savings mobilization and lending) cause economic growth is the theme on which this study was based. Data on gross domestic product (GDP), credit to private sector (CPS) and total bank deposit (DPS) were obtained from Central Bank of Nigeria (CBN) statistical bulletin and used to compute savings ratio (SR) and credit ratio (CPR). A time frame of 1980-2008 was adopted. The hypotheses that no causal relationship exist between savings mobilization and credit on one hand and economic growth on the other were tested. The Granger Causality Test was used to test these hypotheses. It could not identify any significant causal relationship between banks’ savings/credit and economic growth. The absence of such a relationship was conjectured to be due to the economies developmental stage characterized by infrastructural decay and the inefficient utilization of mobilized deposits. The study therefore recommended improvement in infrastructure such as roads and power supply. It also suggested close regulatory monitoring to ensure that mobilized deposits are used mainly in funding the productive sector.

Key words: Financial intermediation; Economic growth; Savings; Credit; Liberalization