The financial sector in a typical economy is saddled with the primary responsibilities of financial resource mobilization and intermediation. It engages in the redirection of funds from surplus spending units to deficit spending units. In other words, the financial sector provides funds used as capital input by producers in other sectors of the economy as well as by final consumers. The impact of the delivery of these financial services in the form of working capital to the producers is felt in the short run. Thus, the financial sector, especially the commercial banking system, is important in the smooth functioning of the real sector of the economy. The real sector of the economy forms the main driving force of the economy. It is the engine of economic growth and development. In spite of its importance, however, the performance of the real sector in terms of production and growth rate has been low. Its contribution to GDP, hovering between 45% and 51%, has not made any remarkable increase over the years (Central Bank of Nigeria, 2000). Essentially, the real sector relies on the banking system for working capital with which to purchase inputs locally and abroad. Increases in bank lending rates, therefore, compound the problem of rising cost of working capital, thereby increasing the significance of cost of funds in the performance of the sector. This suggests the need, using secondarily sourced time-series data from 1970 to 2003, to carry out an in-depth study of commercial bank lending rates and its impact on the real sector of the economy. The study is, therefore, important as it is expected to provide useful insights into the probable cause of slow output growth and resource unemployment in the real sector of the Nigerian economy.
(financial resources) are mobilized by the commercial banks
offering to pay interest (savings deposit rates) to individual
economic agents who respond to such price incentives by depositing
a proportion of their income in the banks. This response,
for example, may reflect abstention from consumption in the
Keynesian sense and/or changes in the structure of existing
savings portfolio à la Tobin (Ajakaiye, 1996).
The mobilized savings are, in turn, supplied to demanding
producers and investors in the form of bank credit at certain