ISSN 2039-9340 Mediterranean Journal of Social Sciences Vol. 4 (1) January 2013 83 Private Sector Creditand Economic Growth Nexus in Nigeria: An Autoregressive Distributed Lag Bound Approach Haruna Mohammed Aliero PhD Department of Economics Usmanu Danfodiyo University, Sokoto Mobile: +234-8135219790, Email: harliero66@yahoo.com Yahya Zakari Abdullahi PhD Department of Economics Usmanu Danfodiyo University, Sokoto Mobile: 07031538760, E-mail: ayzakari@yahoo.com Nasiru Adamu Department of Economics Isa Kaita College Of Education, Dutsin-Ma , Katsina State Mobile: 08038213942, Email: adamun93@yahoo.com Doi:10.5901/mjss.2013.v4n1p83 Abstract This paper analyses the relationship between private sector credit and economic growth in Nigeria, using time series data for the period of thirty-seven (37) years (1974-2010). In analyzing the data the paper used Autoregressive Distributed Lag (ARLD) bound F-test for cointegration. The results indicated that a long run equilibrium relationship exists between private sector credit and economic growth, when private sector credit was used as dependent variable. However, causality results indicate that there is no causal relationship between private sector and economic growth in Nigeria. Therefore the empirical findings of this research implied that while “demand following hypothesis” prevailed in the long run relationship between private sector credit and economic growth in Nigeria, non-causal impact between private sector and economic growth on the other hand indicates the prevalence of the Schumpeterian “independent hypothesis” on the Nigerian economy. Finally, the study recommends long-term investment loan to the productive private sector in addition to the need for comprehensive policies and strong legal framework for easy disbursement and quick recovery of private sector credit. Keywords: ARDL, Private Sector Credit, Co-integration, Causality, Economic Growth. 1. Introduction Economic growth from whatever angle it is viewed indicates the ability of an economy to increase production of goods and services over a certain period of time using the stock of capital and other factors of production within the economy (Popkova et-al, 2008). However, theoretical discussions on the importance of finance and economic growth have occupied a key position in the financial economics literature. The theoretical benchmark of the early studies on the relationship between finance and economic growth may be traceable to Schumpeter (1934), Mckinnon (1937) and Shaw (1973). They strongly emphasized on the critical role of finance in economic growth. Their argument is centered on the role of banks in facilitating technological innovation through its intermediary role. This role according to them is performed through the process of channeling funds in the form of credit or loan for investment to those economic agents who need them and can put them into the most productive use. Thus, credit which is defined in this context, as the link through which resources are transferred for capital formation, facilitates investment which leads to economic growth. There has been a renewed interest globally into the study of credit to private sector and its ability to generate economic growth. These studies stressed that firms that are able to generate external finance are more likely to grow than those limited to internal finance (Levine 2002; Beck, Rioja and Valen 2009). Moreover, recent empirical findings provided support for the existence of finance and economic growth relationship. These includes the works of Eatzaz and