Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.8, No.12, 2017 9 Bank Credit and Economic Growth in a Recessed Economy DIMGBA, Chidinma Martha 1 EGINIWIN, Joseph Ese 2 OGBONNA, Kelechukwu Stanley 3 ATSANAN, Angela Ngunan 3 1.Department of Business Administration, Nnamdi Azikiwe University, Awka 2.Department of Accounting and Finance, Edwin Clark University, Delta 3.Department of Banking and Finance, Nnamdi Azikiwe University, Awka Abstract The study examines the extent to which Bank Credit relates to economic growth in a recessed economy. The objective of the study is to determine the extent of relationship that exist between Bank Credit and economic growth of selected Small Scale Enterprises in Nigeria from 1992 to 2015. The study employs Philip-Peron and Augmented Dickey Fuller Unit Root Test, Johansen Co-integration, OLS regression and Granger Causality. The result of the study revealed that Bank credit to Small Scale Enterprises significantly related to economic growth in the short run and long run. Hence, the study recommends that Bank Credit to Small Scale Enterprises should be increased to grow the economy like the developed economy that thrives on Small Scale Enterprises. Keywords: Bank Credit, Small Scale enterprises, GDP 1. Introduction Finance is a major tool for economic growth and its continuous free flow from the savings surplus unit to the saving deficit unit that require such funds for investment purposes facilitates the multipliers effect of money via financial institution in any economy. In every developing economy of the world, efficient credit facility is the engine that drives investment and productivity. In a recessed economy like Nigeria, appropriate credit facility to key sectors of the economy both at small scale and large scale can lubricate and prove the next sweetening curve to economic appreciation. Ademu (2006) posit that the provision of credit with sufficient consideration for the sector’s volume and price system is a way to generate self-employment opportunities. This is because credit helps to create and maintain a reasonable business size as it is used to establish and/or expand the business, to take advantage of economies of scale (Yakubu and Affoi, 2013). Credit is the aggregate amount of funds provided by commercial banks to individuals, business organizations/industries and government for consumption and investment purposes. Timnsina (2014) argued that individuals obtain credit for both consumption and investment purposes, business organizations/industries borrow loans to invest in plant and machinery where as government borrows loans to spend for recurrent as well as capital purposes. Credit can be gotten from two major markets; namely the money market and the capital market. The money market is the market for short term credits and major players in this market are commercial banks, discount houses, insurance e.t.c. while the capital market is the market for medium and long term credit like the stock exchange. For the purpose of this study, emphasis will be placed on short term credits by commercial banks to small scale enterprises and private investment companies and how such credit facilitated economic growth in Nigeria. Hence, the following objective is formulated for the study; To determine the type of relationship that exists between Bank Credit and economic growth of selected Small Scale Enterprises in Nigeria from 1992 to 2015. Hypotheses H0 1 : There is significant relationship between bank credit to small scale enterprises and economic growth (GDP). H0 2 : There is significant relationship between bank credit to private sector and economic growth (GDP). 2. Review of Related Literature Concept and theoretical review According to Investopedia (2017), Bank credit is the aggregate amount of credit available to a person or business from a banking institution. It is the total amount of funds financial institutions provide to an individual or business. It is an agreement between banks and borrowers where banks trust a borrower to repay funds plus interest for either a loan or line of credit at a later date. It allows borrowers to buy goods or services. However, it requires a fixed minimum monthly payment for a specified period. Hence, Credit is the money from the lender to the borrower (Nwanyanwu, 2010). Yakubu and Affoi (2014) reveal that Credit cannot be divorced from the banking sector as banks serve as a conduit for funds to be received in form of deposits from the surplus spending unit of the economy and passed on to the deficit spending units who need funds for productive purposes. Banks plays the role of an intermediary between the surplus units of an economy who have less need for such funds and saving deficit of an economy who require funds for investment purposes. Financial institutions credit comes at a cost and the cost terms vary by bank, credit type, the borrower credit rating and the purpose of the funds. Two