AN EMPIRICAL EVALUATION OF THE EFFECT OF LENDING RATES ON ECONOMIC GROWTH IN NIGERIA

This study examines the empirical evaluation of the effect of lending rates on economic growth in Nigeria
Specifically, the study sought to: (i) determine the effect of lending rates on economic growth in Nigeria,
(ii) examine the relationship between lending rates and private sector investment, and (iii) assess the
short-run and long-run implications of lending rates for economic growth. The study adopted an ex-post
facto research design and relied on secondary data obtained from relevant government publications and
financial reports covering a 35-year period. Data on Gross Domestic Product Growth (GDPG), Lending
Rate (LR), Private Sector Investment (PSI), and Inflation Rate (INF) were analyzed using Statistical
Package for Social Sciences (SPSS) Version 20. Descriptive statistics, correlation analysis, multivariate
tests, Variance Inflation Factor (VIF), and Augmented Dickey-Fuller (ADF) unit root tests were
employed for data analysis. The findings revealed a significant negative relationship between lending
rates and economic growth (r = -0.665, p < 0.01), indicating that higher lending rates adversely affect
economic performance by increasing borrowing costs and discouraging productive investment. The study
also found a positive but statistically insignificant relationship between lending rates and private sector
investment (r = 0.187, p > 0.05), suggesting that factors other than lending rates may play a more
prominent role in influencing investment decisions. Furthermore, the results indicated that lending rates
have both short-run and long-run implications for economic growth. The study concluded that lending
rates remain a critical determinant of economic performance in Nigeria. The study recommends that
monetary authorities should maintain moderate and stable lending rates to stimulate investment and
economic growth. The implication of the findings is that a stable and investment-friendly interest rate
environment is essential for enhancing productive activities, encouraging capital formation, and
promoting sustainable economic development in Nigeria.