Title: Interest rate liberalisation and economic growth in Nigeria: evidence based on the ARDL-bounds testing approach

Authors: Erasmus L. Owusu; Nicholas M. Odhiambo

Addresses: AC Nielsen, 12 Rosedale Close, Redditch, B97 6JQ, Oxford, UK ' Department of Economics, University of South Africa, P.O. Box 392, UNISA, 0003, Pretoria, South Africa

Abstract: This paper examines the relationship between interest rate liberalisation policies and sustainable economic growth in Nigeria. Employing the autoregressive-distributed lag (ARDL) - bounds testing approach and using GDP per capita as economic growth indicator, the paper establishes a long run relationship between economic growth and interest rate liberalisation, which is represented by an index calculated using principal component analysis (PCA). The empirical findings of this paper show that interest rate liberalisation policies have a positive impact on economic growth in Nigeria. These results apply irrespective of whether the test is conducted in the short run or in the long run. This supports the numerous past studies, which have reported positive results regarding the effects of interest rate liberalisation on economic growth. The paper, therefore, concludes that interest rate liberalisation policies have been very effective in bolstering economic growth in Nigeria.

Keywords: economic growth; interest rate liberalisation; ARDL-bounds testing; co-integration; Nigeria; sustainable economy; GDP per capita; principal component analysis; PCA.

DOI: 10.1504/IJSE.2014.060351

International Journal of Sustainable Economy, 2014 Vol.6 No.2, pp.130 - 141

Received: 19 Jun 2013
Accepted: 19 Oct 2013
Published online: 17 Jun 2014 *

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