EAS Publisher | Interest Rate and Real Sector Output Growth in Nigeria: Empirical Evidence

Interest Rate and Real Sector Output Growth in Nigeria: Empirical Evidence

DOI : https://doi.org/10.36349/easjebm.2020.v03i10.003

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This paper examined the effect of interest rate on real sector output growth in Nigeria through the period 1985 to 2019. Data were obtained from the World Bank Database on World Development Indicators and the Central Bank of Nigeria Statistical Bulletin. The data were analysed using Augmented Dickey-Fuller unit root test, Cointegration, and the Error Correction Mechanism. The unit root test revealed that the variables were stationary at mixed order of levels and first difference necessitating the test for co-integration. The co-integration test supported the existence of a long run equilibrium relationship between interest rate and real sector output growth. Also, interest rate was observed to exert a negative and significant effect on real sector growth. Thus, a unit percentage increase in interest rate is likely to lead to a 0.274% decrease in real sector output growth. The error correction term showed that 59.9% of the short run disequilibrium in real sector output growth is corrected annually. The paper recommended a cheap monetary policy that will keep interest rate at a favourable level so as to encourage investors to borrow.

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