Volume 7, Number 1 (2020) pp 119-131 doi 10.20448/802.71.119.131 | Research Articles
This study investigates the effect of interest rate on economic growth in Nigeria using annual data spanning the period of 1970–2016. Specifically, the study analyzes the effect of regulated and deregulated interest rates on economic growth in Nigeria. The study employs Ordinary Least Square (OLS) techniques to achieve the objectives. The regression models employed for analysis are specified and categorized to capture: the regulated interest rate regime (1970 – 1986); the deregulated interest rate regime (1987 – 2016) and the full period of study (1970 – 2016).The study reveals that: there is a negative and significant relationship between regulated interest rate and economic growth in Nigeria; there is a negative and significant relationship between deregulated interest rate and economic growth in Nigeria; there is a negative and significant relationship between interest rate and economic growth in Nigeria. The policy implications are easily discernible: high interest rate is detrimental to economic growth in Nigeria; interest rate can be used as a policy variable by the monetary authorities to control the flow of credit and also influence economic growth in Nigeria. Therefore, irrespective of the kind of regime, the management of the interest rate in Nigeria calls for high level discretion on the part of monetary authorities if macroeconomic goals are to be achieved. Thus, the study recommends that: interest rate should be closely monitored, stabilized and effectively managed. Monetary authorities should endeavour to maintain the interest rate at a single digit and at minimal levels to encourage investment and foster output growth.