Still on the Influence of Interest Rate on Nigerian Economy (1986 – 2018)

Authors : Sulaiman, Luqman Adedamola; Idris, Babatunde Kazeem; Badru, Taiwo Bolanle

Volume/Issue : Volume 6 - 2021, Issue 4 - April

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- Interest rate has been at the center of every monetary policies around the world, as it is vital in stimulating and changing the state of the economy. This study examines the effect of interest rate on the growth of Nigerian economy for the period 1986 to 2018. It utilizes the ARDL bound testing method to find the connection between economic growth measured by GDP and independent variables (lending interest rate (INT), savings rate (SVR), inflation rate (INF), broad money supply (M2), financial deepening (FD) and exchange rate (EXR). The findings establish a long run relationship between rate of interest and the growth of the economy. The short run analysis shows that one lagged value of GDP is negatively related with current GDP. While two lagged value of GDP has positive effect on the current GDP. The current value and one lagged value of M2 have negative effect on GDP. While two lagged value of M2 has positive effect on GDP. INF, FD and the current one lagged and two lagged value of EXR have negative effect on GDP. On the other hand, the current, one lagged and two lagged value of SVR have positive effect on the GDP. The granger causality test revealed a unidirectional causality from GDP to M2, weak unidirectional causation running from GDP to INT, SVR to GDP, and weak bidirectional causation between EXR and GDP. Also a unidirectional causation running from GDP to FD, INF to INT, SVR to INT, and a bidirectional causation between SVR and INF. There is no causation between INT and FD. The findings of this study reveals that rate of interest has a positive effect on the growth of the economy. Based on the findings, the study recommends that monetary authority need to be more proactive rather than being proactive most times

Keywords : Interest Rate, Economic Growth, Gross Domestic Product, ARDL, Nigeria


Paper Submission Last Date
28 - February - 2023

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