CHAPTER ONE

INTRODUCTION

1.1BACKGROUND OF THE STUDY

To attain long-term sustainable economic development would largely depend on the ability to raise the rate of accumulation of physical and human capital (Adelakun, 2011), to use the resulting production assets of the efficiently, and to ensured access of the whole population to these assets (Birdsall and Dondono, 1997). Financial institution or intermediaries supports large scale investment process by mobilizing household and foreign saving for investment by firms: ensuring that these funds are allocated to the most productive use and spreading risk and providing liquidity so that firms within the economy can operate the new capacity efficiently. Financing economic development in country like Nigeria would involve the establishment and expansion of financial institution, investment and market that would support this investment and development growth process.

It is known that the role of financial intermediaries ranging from pension funds to stock market has been to transfer household savings into enterprise investments and allocate funds, and to price and spread risk.

Financial economic development literally starts with the banking sector and depends on the diffusion of money which the banking sector provides.

As nations become lightly develop, the share of the banking system in the assets of the financial sector is in the decline, while that of power and more specialized financial institutions are of lower value than the financial asset by all other financial institutions whereas the reverse is true in economically under developed nations.

In discussing the role of financial intermediaries in financing economic development, two major school of thought would be looked at.

The first school of thought asserts that financial sector plays a limited role in achieving economic development, (Robison, 1952: Hucat 1988).

This school of thought consider that when the economy developed, the financial sector grows within it. Robison (1952) asserts that “where enterprises lead financial follows” and according to Lucas (1988) economist “badly over stress” the role of financial sectors in financing economic development.

Rajan and Zingale (1998) and Cameron (1967) opined that although financial development is essential for growth, it is only “a lubricant but not a substitute for the machine”.

The second schools of thought accords a crucial role to financial intermediaries in boosting the process of growth innovation and economic development (Bagehet, 1873, Schumpeter, 1911). Baychet and Schumpeter opined that it is only at a later stage that financial development lead to economic growth and development.

Haber North and Weingaat, (2008) assert that countries do not have large banking system and securities markets because they are wealthy; they are wealthy because they have large banking system and securities market.

For Levine (1996), there sis even evidence according to which the level of financial institution and development is a good predictor of future rate of growth at capital accumulation and of technological change.

They all affirm that the degree of financial development and the role of economic growth indicates much more than a positive association between contemporaneous shocks and financial development and economic growth.

Generally it states that the role of financial institution can never be overemphasized in financing the growth of any economy.

In Nigeria there has been an underdevelopment of the real sector (economy) and it has been envisaged that the reason for this is the lack of fund from the financial sector (the banks) to the economy.

As stated by statistic from Goldsmith (1969), there is clearly a positive correlation between levels of economic development and its financing by financial sector. 

1.2STATEMENT OF THE PROBLEM

The fundamental question in economic development and growth that has restated in the minds of many researchers is why nation grow at different rate.

The literature has come with numerous explanations of cross country differences in development and growth, including sector accumulation, resource endowment, the degree of macroeconomic stability, educational attainment institution development and legal system effectiveness.

One critical factor that has begin to receive considerable attention more recently is the role of financial institution in economic development, the growth process especially in the event of recurring global economic meltdown.

To tackle this issue more developed country create and develop large scale financial institution.

With this fact, it would be stressed that the aim of developing a financial system (the Nigerian bank), is to develop the country’s economy.

Indeed, the role of financial institution in Nigeria bank is considered as the key to economic development as well as growth.

Economist have generally reached a consensus on the control role of financial institution in financial economic development theoretically, empirical work, supporting this concept are conflicting. While some school of thought believe that finavial institution play limited role in driving the economic development of ant nation some other according to a crucial role to financial institution in boosting the process of economic development, while other believe the financial institution promotes development with growth in turn, come. The formation of a viable market (Nicet-chenaf, 2012). This research work intends to collapse the gap in the literature by empirically investigating the role of the financial institution (the banks) in financial economic development in Nigeria. 

1.3RESEARCH QUESTIONS

The research question which would guide this study are as follows:

Is there any significant relationship between commercial bank loans and advance to the financial sector?

What impact does Comerica bank credit to the agricultural sector on real GDP?

What relationship exist between commercial banks loans and advances to the manufacturing sector and per-capita income? 

1.4OBJECTIVE OF THE STUDY

The objective of the study are to:

to examine the impact of commercial bank loans and advances to the manufacturing sector on per-capital income in Nigeria. 

To determine the relationship between commercial banks loans to the financial sector on per capital income in Nigeria 

Assess the Impact of agricultural loans by commercial banks on real GDP. 

1.5SIGNIFICANCE OF THE STUDY

Financial institution are seen as a vehicle for promoting economic development.

Financial institution identifies the most efficient investment avenues and channel resources from savers into investors.

It also screen borrowers, manage risk, and operate the payment and settlement system.

This study is significant and unique because it empirically investigation and analysis the role of the Nigeria bank in financing economic development as it relates to Nigerian.

1.6SCOPE OF THE STUDY

This study focuses on the empirical relationship that exist commercial bank finances to the various sectors of the nations economy for the period 1980 to 2011. 

1.7ORGANIZATION OF THE STUDY

This study shall be divided in five chapters. This first chapter shall introduced the study as well as provide the background of the subject matter justifying the need for the research work.

The second chapter will present related literature concerning financial economic development as a relation to the role of the Nigerian ban.

The third chapter will present research methodology which will include the study design source of data model formation, estimation technique. 

The four chapter will include the data presentation and analysis for the study. 

The summary, conclusion and recommendation shall be sited in the last chapter.

Generally, the area of organization of this research is on the role of Nigeria banks in financing economic development in Nigeria.

1.8DEFINITION OF TERMS

The financial sector is a category of stocks containing terms that provide financial services to commercial and retain customers. This sector include bank, investment funds, insurance companies and real estate. Financial intermediaries consists of channeling funds between surplus and deficit agents.

A financial intermediaries is a financial institution that connect surplus and deficits agent

The bank in this context is referred to as financial institution and intermediary deposits into lending or directly through capital market.

Economy consists of the economic system of a country or their area.

Economic development generally refers to the sustained, concerted action of policy makers and communities that promote the standard of living and economic health of a specific area.

It is also the quantitative and qualitative changes in the economy.