TOTAL FACTOR PRODUCTIVITY AND NIGERIAN BANKING INDUSTRY: COBB DOUGLAS PRODUCTION APPROACH

Banking industry contribution to the Nigerian GDP leaves much to be desired due to questionable productivity of factor input among other inherent factors. The study seeks to traverse the current state of factor productivity in Nigerian Banking industry While adopting Cobb- Douglas production function as framework, the study further employ the unit root to ascertain the nature of the time series in terms of stationarity, Co-integration among variables was conducted using Johansen co-integration test. Ordinary Least Square and Error Correction Model was employed to establish the short and long run relationship between the dependent variable and the independent variables of the models. The causal relationship among the variables was determined using ganger causality test. The model was appropriately diagnosed and Test of statistical adequacy adequately conducted. The result shown that the Banking Industry is characterized by Decreasing return to scale with capital having a significant effect on commercial bank output while Number of labour input has negligible effect on commercial output in the short run and insignificant effect in the long-run. The Total Factor Productivity in the Short-run is less than it long run. the marginal rate of technical substitution of capital for labour MRTSk,l is -1.11268. Hence, unless labour input productivity is boosted, it might most likely go gradually into extinction in the long-run in the financial institution with its possible substitution with modern and evolving capitals like Robotics hence recommends two alternative options to commercial bank, either to boost labour Productivity rather than increasing it’s number or boost output by trading-off labour input for capital input.