Bank Credit Channels and Economic Growth in Nigeria: An ARDL Bounds Test Approach

By: Eja Basil Richard, Ugah John

Pages: 742–757, Volume: 3, Number: 1

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 5/1/2026, 2026

ISSN (Electronic): 2536-6742

DOI:

Bank Credit Channels and Economic Growth in Nigeria: An ARDL Bounds Test Approach

Abstract:

The paper investigated the empirical relationship between bank credit channels and economic growth in Nigeria, specifically disaggregating bank credit into three functional channels: Deposit Money Bank Credit (DMBC), Agricultural Bank Credit (AGBC), and Microfinance Bank Credit (MFBC). Anchored on endogenous growth theory (Pagano, 1993), the study utilizes annual time-series data from 1991 to 2024 and the ARDL bounds testing approach to cointegration. The empirical results reveal a significant long-run relationship among the variables. Specifically, the result reveal that DMBC exerts the largest positive effect on real GDP (β = 0.482, p < 0.01), followed by AGBC (β = 0.215, p < 0.01), while MFBC exhibits a positive but smaller effect (β = 0.119, p < 0.05). The short run dynamics confirm similar patterns with reduced magnitudes. The error correction term (-0.324, p < 0.01) indicates that 32.4% of disequilibrium is corrected annually. The study concludes that disaggregating bank credit by functional channel improves policy targeting and economic growth. Hence, policymakers should prioritize DMBC allocation to productive sectors, strengthen AGBC through complementary agricultural policies, and maintain MFBC to ensure that credit to specialized sectors effectively contributes to the overall growth of the economy.

Keywords: Economic growth, ARDL, disaggregated bank credit, endogenous growth; financial intermediation