Abstract

This study investigated possible effects of banking sector consolidation- credit allocation to selected sectors on the growth of Nigerian economy. utilizing time series data on growth rate of GDP, banking sector credit distribution to the agriculture, manufacturing, oil and gas/mining, commercial (export financing) sectors and bank size (number of Deposit money bank branches) for the period 1981 - 2015 and employing Vector Error Correction Model (VECM), the results indicate that only banking sector credit allocation to the manufacturing sector is positive and significant at 5 percent level. Banking credit to agriculture, oil & gas/mining, commercial and bank size were all insignificant at 5 percent level. This result revealed that funds allocated to the manufacturing sector spurred economic growth in Nigeria during the duration of this investigation. Other finding of study shows that the manufacturing sector has higher propensity for increasing investment, job creation and value addition hence attracts funds from the banks than other sectors. Based on these findings, the paper suggested creation of enabling environment and enactments of policies that will enhance higher credit allocation to manufacturing sector in particular and the real sector in general in order to spur investment, job creation and stimulate economic growth in Nigeria.