Impact of Bank Credit and Economic Recession on Manufacturing Sector Output

By: Chukwudi Emmanuel Edeh, Michael Ogbonna Agbafor, Anselm Ejinwa Okere

Pages: 386–402, Volume: 2, Number: 2

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 9/1/2025, 2025

ISSN (Electronic): 2536-6742

DOI: 10.48028/iiprds/aefunaijefds.v2.i2.21

Impact of Bank Credit and Economic Recession on Manufacturing Sector Output

Abstract:

This study investigates the combined and interactive effects of deposit money bank credit and economic recession on manufacturing sector output in Nigeria from 2010 to 2023. Preliminary tests done with the Augmented Dickey-Fuller and Phillips-Perron unit root tests indicated evidence of I(0) and I(1) stationarity of variables. The bound test showed evidence of cointegration in the model. The Autoregressive Distributed Lag (ARDL) model estimation results that bank credit significantly boosts manufacturing output in the short run but has an insignificant long-run impact. Real GDP growth rate, used as a proxy for economic recession, exerts mixed short-run effects and a negative long-run impact. This indicates the sector’s exclusion from wider economic gains. However, the interaction between bank credit and GDP growth rate is positive and significant in the short run and in the long run. The implication is that bank credit plays a stabilizing role of credit during economic downturns. While broad money supply enhances long-run output, interest rate spreads show no significant effect. Based on the findings, the study suggest that strategic credit allocation, enhanced liquidity, and targeted industrial policies are essential to bolster manufacturing resilience and integrate it into the broader economy.

Keywords: Bank credit, Economic recession, Manufacturing output, Financial constraints, Nigeria