Influence of Interest Rate on Industrial Output in Nigeria

  • Chioma Chidinma George-Anokwuru University of Port Harcourt, Nigeria
  • Itoro Bosco University of Port Harcourt, Nigeria
Keywords: interest rate, industrial output, ARDL and Nigeria

Abstract

The study examined the effect of interest rate on industrial sector in Nigeria from 1980 to 2018. The data for the study were sourced from Central Bank of Nigeria (CBN) statistical bulletin and Autoregressive Distributed Lag model was used as the main analytical tool. The ARDL Bounds test revealed the existence of long run relationship among the variables. The result further revealed the existence of a positive relationship between interest rate and industrial output both in the long run and short run. The rate of inflation was negatively related to industrial output but the relationship was not significant in both the short run and the long run. The number of labour force affected the productivity of industry thereby increasing its output in both the short run and the long run. Gross investment has a positive relationship with industrial output but the relationship was not significant. Lastly, foreign direct investment was not significant in affecting industrial output in the short run but it was positive and significant in affecting industrial output in the long run. The study concluded that interest rate has the ability to influence industry output in Nigeria. Therefore, the study recommended among others that the apex monetary institution - the Central Bank of Nigeria should ensure that the rate of interest that will encourage investors to borrow in order to start to do businesses or to expand their businesses. This will increase industry output and in turn support economic growth in Nigeria.

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Trend in interest rate shows that interest rate fluctuated upwards since 1980 and experienced a sharp decline in the 1991. It later increased and reached peak to 31.65% in 1993. Since then, the interest rate has showed decreasing but stabilizing trend. Interest rate was 16.9% in 2018.
Published
2020-06-02
Section
Articles

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