The Impact of Deposit Money Banks' Credit and Government Expenditure on Industrial Productivity in Nigeria: An Empirical Analysis (1981–2020)

Abstract

This study investigates the impact of Deposit Money Banks' (DMBs) credit and government expenditure on industrial sector productivity in Nigeria using time-series data from 1981 to 2020. Industrial productivity is measured as total industrial sector output, defined as the aggregate value-added (in constant 2010 Nigerian Naira, billions) from the manufacturing, mining and quarrying, and construction sub-sectors, sourced from the Central Bank of Nigeria Statistical Bulletin. An error correction model (ECM) was employed following stationarity tests (Augmented Dickey-Fuller) and cointegration analysis (Engle-Granger), with estimation via Ordinary Least Squares. Empirical results reveal a negative and significant short-run effect of DMB credit on industrial output (coefficient: -0.590963, p=0.0147), rejecting the null hypothesis of no significant relationship. A positive but insignificant lagged effect was observed (coefficient: 0.340145, p=0.1928). Government expenditure showed an insignificant effect (coefficient: -0.884716, p=0.5625), failing to reject the null hypothesis. The error correction term was negative and significant (coefficient: -0.132579, p=0.0429), indicating adjustment to long-run equilibrium, with an R-squared of 0.284340 suggesting modest explanatory power. Based on these findings, recommendations include implementing targeted SME lending quotas and credit guarantee schemes by the Central Bank of Nigeria to improve credit allocation, capping prime lending rates at 15% for industrial loans to reduce borrowing costs, and enhancing fiscal transparency through digital tracking to minimize inefficiencies in government spending.