IDEAS home Printed from https://ideas.repec.org/a/afe/journl/v18y2016i2p1-18.html
   My bibliography  Save this article

Implications of Monetary Policy for Credit and Investment in Sub-Saharan African Countries

Author

Listed:
  • Leonce Ndikumana

    (Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts at Amherst, Amherst, MA 01003, USA,)

Abstract

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.

Suggested Citation

  • Leonce Ndikumana, 2016. "Implications of Monetary Policy for Credit and Investment in Sub-Saharan African Countries," Journal of African Development, African Finance and Economic Association (AFEA), vol. 18(2), pages 1-18.
  • Handle: RePEc:afe:journl:v:18:y:2016:i:2:p:1-18
    as

    Download full text from publisher

    File URL: http://www.afeawpapers.org/RePEc/afe/afe-journl/wp-content/uploads/2017/01/00_Ndikumana_rev2.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chevaughn van der Westhuizen & Renee van Eyden & Goodness C. Aye, 2023. "Monetary Policy Effectiveness in the Face of Uncertainty: The Real Macroeconomic Impact of a Monetary Policy Shock in South Africa during High and Low Uncertainty States," Working Papers 202331, University of Pretoria, Department of Economics.
    2. Khadija Essalhi & Salah Eddine, 2023. "The Impact of Monetary Policy on Private Investment in Morocco: An Analysis Using a VECM Model [L'impact de la politique monétaire sur l'investissement privé au Maroc : une analyse à l'aide d'un mo," Post-Print hal-04303914, HAL.
    3. Kanga, Désiré & Murinde, Victor & Soumaré, Issouf, 2020. "Capital, risk and profitability of WAEMU banks: Does bank ownership matter?," Journal of Banking & Finance, Elsevier, vol. 114(C).
    4. Ezeibekwe Obinna Franklin, 2020. "Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate," Economics and Business, Sciendo, vol. 34(1), pages 139-155, February.
    5. Thuy T. Dang & Anh D. Pham & Diem N. Tran, 2020. "Impact of Monetary Policy on Private Investment: Evidence from Vietnam’s Provincial Data," Economies, MDPI, vol. 8(3), pages 1-15, September.
    6. Ezeibekwe, Obinna Franklin, 2020. "Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 34(1), pages 139-155.

    More about this item

    Keywords

    Domestic investment; bank credit; monetary policy; interest rates; sub-Saharan Africa; inflation targeting; growth;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:afe:journl:v:18:y:2016:i:2:p:1-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Nsiah (email available below). General contact details of provider: https://edirc.repec.org/data/afeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.