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Interest Rate Reform and Real Sector Performance: Evidence from Nigeria

Okoye, Lawrence U. and Nwakoby, Clement I.N. and Modebe, Nwanneka J. (2015) Interest Rate Reform and Real Sector Performance: Evidence from Nigeria. African Banking And Finance Review, 2 (1). pp. 97-114.

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This study seeks to identify the effect of the interest rate liberalization policy of the government (introduced in 1986 under the structural adjustment programme) on the performance of the industrial sector in Nigeria. Specifically, the study examines the extent to which movements in lending or loan rate and its major determinants like exchange rate, inflation rate and financial depth (independent variables) account for the trend in output performance of Nigeria's industrial sector (dependent variable). Annual data on the variables, sourced from the publications of the Central Bank of Nigeria, were analyzed using the analytical technique of the vector error correction model (VECM). The study shows that exchange rate volatility has an insignificant positive impact on industrial output performance. It also shows evidence of significant positive impact of lending rate and financial depth on industrial output growth. However, evidence from the study shows that inflation has a significant negative effect on the output of the sector. To enhance the performance of the sector in Nigeria, government should seek to stabilize exchange rate movements through proper diversification of sources of foreign exchange inflow as well as reduce its outflow in order to support her import-dependent industrial sector while simultaneously pursuing the development of an adequate and efficient infrastructure base for the economy. Properly functioning infrastructure will, among other things, greatly enhance the realization of low price levels and hence low level of inflation required to boost domestic production capacity

Item Type: Article
Uncontrolled Keywords: Interest Rate, Liberalization policy and Real Sector
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HF Commerce > HF5601 Accounting
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Patricia Nwokealisi
Date Deposited: 14 Jun 2017 14:13
Last Modified: 29 Jun 2017 15:23

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