EFFECT OF DEPOSIT MONEY BANKS ON THE ECONOMIC GROWTH OF NIGERIA

ABSTRACT

his study x-rayed the contribution of Deposit Money Banks (DMB) to the economic growth of Nigeria. To achieve this objective, the research work obtained data from the Central Bank of Nigeria (CBN) statistical bulletin from the period 1987 to 2014. The research work employs the multiple regression model in which real gross domestic product (RGDP) is identified as the dependent variable and proxy to economic development in Nigeria while exchange rate (EXR), interest rate (INTR) and money supply (M2) are identified as part of the activities of these DMBs in Nigeria was proxy to the impact of DMBs and represent the independent variables of the study. Ordinary least square (OLS) method – secondary data were used to specify the single multiple regression model of which RGDP was the explained variable and interest rates, money supply and exchange rates were the explanatory variables. The results of the data were analyzed shows that there is a positive and significant relationship between the independent variables and dependent variable. The coefficient of determination R2 (R-Square) is .89 approximately (89%) showing that the estimated model has explanatory/expandability (predictive) power. Thus, economic development of Nigeria is driven by DMBs activities/functions and concludes that DMBs impact on the economic development of Nigeria. As a result, appropriate recommendations made for policy managers as follows: contractionary monetary policy stance of the CBN to be sustained, government should formulate appropriate laws that will reduce if not prevent the high taste for foreign goods that have local substitute by Nigeria, diversifying source of foreign exchange, CBN should formulate appropriate policy framework to close the gap between official and parallel market exchange rate.

CHAPTER ONE

BACKGROUND OF THE STUDY

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1.0         STATEMENT OF THE PROBLEM

Literally, if one is asked to state the most important problem to be encountered in the course of a research study, one will obviously say it is finance. But in the course of embarking on this work, I found the contrary to be the case.

However, the greatest problem I had was inaccessibility to data source. This is manifested in the form of bureaucratic bottle of neck and skepticism. This phenomenon is further worsened or compounded if the research is found to be a student. But, this is not to under play the role of finance in research work, as all decisions has to be executed with finance.

1.1         OBJECTIVE OF THE STUDY

The main aim or objective of this study is to explore the level of contribution Deposit Money Banks (DMBs) made towards economic growth of Nigeria. Other objective is:

1.  To determine whether the activities of DMBs’ in Nigeria do impact on the level of economic growth in Nigeria.
2. To determine whether there is significant relationship between the activities of the DMBs and Real Gross Domestic Production (RGDP) in Nigeria.

The parameter being used to determine the level of economic growth in this study is the Real Gross Domestic Product (RGDP). While those used in determining the contributions of DMBs to economic growth are money supply, interest rate and exchange rate.

However, other objective of this study is that, it will serve as a basis or reference material for other researchers who might be interested in the study of the activities of DMB’s with regards to economic growth.

1.2         RESEARCH QUESTIONS

The following research question was formulated in order to do adequate justice to the research work.

1. i.              To what extent do the activities of DMB’s in Nigeria have impact on the level of economic growth in Nigeria?
2. ii.            To what extent is the significant relationship between the activities of the DMBs and Real Gross Domestic Production (RGDP) in Nigeria?

1.3         HYPOTHESES

The hypotheses, which this study is out to test, are as follows:

Hypothesis I

H0:  The activities of DMB’s in Nigeria do not have impact on the level of economic growth in Nigeria.

H1:  The activities of DMB’s in Nigeria have impact on the level of economic growth in Nigeria.

Hypothesis II

H0:  There is no significant relationship between the activities of the DMBs and Real Gross Domestic Production (RGDP) in Nigeria.

H1:  There is a significant relationship between the activities of the DMBs and

Real Gross Domestic Production (RGDP) in Nigeria.

1.4         SCOPE OF THE STUDY

This study covers the activities of Deposit Money Banks (DMBs) in Nigeria as stipulated by the monetary authority- Central Bank of Nigeria.

Emphasis will be on the activities of commercial banks in the country. This is because all other DMBs such as micro – finance banks and merchant banks relate with the monetary authority through the commercial banks.

Through the activities of Deposit Money Bank’s (DMB’s) started before the political independence of Nigeria, this study shall be limited to the era of between 1987 and 2014.

This limitation was done solely for the purpose of statistical analysis. Because if this study is extended to the era of independence, the variables involved will be more than thirty, a figure which is required for ordinary least square (OLS) analysis.

1.5         SIGNIFICANCE OF THE STUDY

This research work will be of great significance to the following groups in the society:

1. The finding of this study will be most beneficial to policy makers in the monetary authority, government and researchers.
2. The finding can assist government in making fiscal policy that will enable it increase development in the country.
3. The monetary authority can also use this finding to fine tune existing monetary policies if required and/or formulate new ones.