The Nexus of Interest Rate Deregulation and Economic Growth in Nigeria

Abstract

This study examines the nexus of interest rate deregulation and economic growth in Nigeria. The study used secondary data generated from the Central Bank of Nigeria (CBN) statistical bulletins from 1986-2010 and employed the Ordinary Least Square Regression. The dependent variable is economic growth proxied as Real Gross Domestic Product (RGDP) while Interest rate and other control variables served as independent variables. Using E-views statistical package, the result showed that the coefficients of Interest rate, Investment, Trade openness, Real exchange rate and inflation contributed positively to the level of growth in Nigerian economy during the period under review. Statistically, the t-statistic of the variable under consideration showed that all the variables under consideration but for one were significant, while the variable inflation was not significant statistically. The F-statistic interpreted showed that the overall estimate of the regression has a good fit and were statistically significant. The overall result agreed with the interest rate theory which states that the low level of interest rate encourages manufacturers to borrow money which increases their productive capacities. The study therefore recommends market driven or flexible interest rates that will not only boost productive capacities and encourage export activities but will also improve the overall performance of the Nigerian economy.