Monetary Policy, Private Capital Formation and Economic Growth – The Case of Sub-Saharan Africa

Abstract

The study sought to test the impact of the policy rate on growth and investment in some selected countries in the Sub-Saharan Africa region. Data for nine (9) countries over a 23-year period was captured and a dynamic panel model estimated. Based on the study results, the major findings were: growth in SSA is cyclical whilst private capital formation is a persistent and smooth function in the region. Growth is positively related to the policy rate, following the McKinnon and Shaw (1973) hypothesis, but stock market development has no effect on growth or private capital formation. The overall impact of trade openness is ambiguous and the policy rate is not a critical factor to private capital formation in the SSA region. Based on the purpose of the study it can be concluded, that while private capital is obviously positively influential on growth, the formation of private capital to stimulate growth is not driven by the monetary policy stance.

Keywords: Private capital formation, Trade openness, Investment, Sub-Saharan Africa

JEL Classification: B22, E42, E52