INTEREST RATE AND ECONOMIC GROWTH IN NIGERIA: 1986-2018
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Authors: Jimoh Akeem Akande, Mustapha Musiliu Raji
Keywords: interest, macroeconomics, domestic, autoregressive, growth
Abstract: The interest rate is a major macroeconomic variable that determines resource allocation, investment capacity, and economic growth. This paper focused on the disaggregated effect of interest rate on economic growth of Nigeria over the period of 1986 to 2018. Data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin. The result of Augmented Dickey-Fuller unit root test indicated that real gross domestic product, deposit rate, total savings as a percentage of gross domestic product and inflation rate were stationary at first difference while lending rate was stationary at level. The long-run relationship was found among lending rates, deposit rates, total savings as a percentage of gross domestic product and inflation rate and economic growth. The dynamic Autoregressive Distributed Lag results showed that the lending rate impedes real gross domestic product while the deposit rate stimulates real gross domestic product in Nigeria. The study concluded that the interest rate is a major determinant of economic growth in Nigeria. Therefore it was recommended that interest rate policy that would encourage savings and borrowing should be formulated in order to engender economic growth.