Authors :
Sulaiman, Luqman Adedamola; Idris, Babatunde Kazeem; Badru, Taiwo Bolanle
Volume/Issue :
Volume 6 - 2021, Issue 4 - April
Google Scholar :
http://bitly.ws/9nMw
Scribd :
https://bit.ly/3wllFpQ
Abstract :
- 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
- 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
