This paper investigates the implications of monetary policy for domestic investment through its effects on bank lending to the private sector and interest rates in sub-Saharan African countries. The study argues that the pursuit of inflation control through contractionary monetary policy carries high costs in terms of reduced investment and ultimately slower economic growth. The econometric evidence based on a sample of 37 sub-Saharan African countries over 1980-2012 shows that contractionary monetary policy affects domestic investment negatively both indirectly through the bank lending or quantity channel as well as directly through the interest rate or cost of capital channel. The results suggest that policies that maintain a low interest rate regime would stimulate bank lending to the private sector, which in turn would boost domestic investment. The results have important policy implications for African countries in their efforts to achieve and sustain high growth rates as a means of reaching their national development goals notably employment creation and poverty reduction.
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October 01 2016
Implications of Monetary Policy for Credit and Investment in Sub-Saharan African Countries
Léonce Ndikumana
Léonce Ndikumana
Léonce Ndikumana, Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts at Amherst, Amherst, MA 01003, USA, [email protected]. The author is an Honorary Professor at Stellenbosch University in South Africa.
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Journal of African Development (2016) 18 (2): 1–18.
Citation
Léonce Ndikumana; Implications of Monetary Policy for Credit and Investment in Sub-Saharan African Countries. Journal of African Development 1 October 2016; 18 (2): 1–18. doi: https://doi.org/10.5325/jafrideve.18.2.0001
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