Autoregressive distributed lag estimation of bank financing and Nigerian manufacturing sector capacity utilization

Abstract

This study examined the short-term and long-term relationship between credit financing by commercial banks and capacity utilization of the manufacturing sector in Nigeria. The study employed both classical Multiple Linear Regression (OLS-MLR) and the autoregressive distributed lag model (ARDL) to analyze data representing the period 1981–2020 relating to sectoral credit finance,labor employment,and capacity utilization from the Central Bank of Nigeria Statistical Bulletin (2020) and World Bank Development Indicators (2021). Further,the two estimation procedures were performed within a classical endogenous Cobb-Douglas production function framework that takes technical change into consideration. The bounds test indicated no long-term relationship between bank financing and average capacity utilization of the manufacturing sector in Nigeria. However,the ARDL results revealed that bank financing exerts a positive but insignificant short-term impact on the average capacity utilization of the manufacturing sector in Nigeria. Consequently,the researchers affirm that credit financing by commercial banks in Nigeria has no significant impact on the capacity utilization of the country's manufacturing sector,in neither the short run nor the long run.