Interest Rate and Economic Growth: The Case of Nigeria

Samuel Abiodun Ajayi, Olufemi Adebayo Oladipo, Lawrence Boboye Ajayi and Tony Ikechukwu Nwanji

The focus of this study is on the assessment on the effect of interest rate on Economic Growth of Nigeria. The study adopted an Error-Correction Mechanism to test for the short - and long – run relationships among the saving deposit, real interest rate and inflation, ECM is negative and further test of Granger causality indicates that there is a causal relationship between SD and GDP and a unidirectional relationship exists between SD and GDP. Therefore Savings deposit causes Gross domestic product. The study recommends that policies which would boost the saving accumulation in Nigeria that will increase Capital Formation are necessary for economic growth. This will also enhance lending to the real sector of the economy for productive economic activities. This could be done by increasing the deposit rate which would lure the people to deposit their money in banks thereby increasing the supply of loanable funds. This would lead to a fall in interest rate and eventually rise in investment.

DOI : https://doi.org/10.21102/irbrp.2017.03.131.10