BANK CREDIT, PRIVATE INVESTMENT AND MACROECONOMIC UNCERTAINTY IN SIERRA LEONE

Korsu, Robert Dauda and Tamuke, Edmund (2023): BANK CREDIT, PRIVATE INVESTMENT AND MACROECONOMIC UNCERTAINTY IN SIERRA LEONE.

Abstract

The paper investigates the effect of bank credit to the private sector on private investment in Sierra Leone and the role of macroeconomic uncertainty in the relationship. An autoregressive distributed lag model of private investment is estimated with annual data from 1980 to 2019, using OLS in the context of Pesaran-Shin-Smith approach. The results show that there is a long run relationship between private investment and the model variables and in the long run, bank credit has a positive and significant effect on private investment in Sierra Leone, while macroeconomic uncertainty vitiates this effect. In the short run however, bank credit is not found to have a significant effect on private investment, though it contributes positively and the impact of macroeconomic uncertainty on this effect is also not significant, though it reduces the impact of bank credit. Hence, during high macroeconomic uncertainty, like the current global environment, strongly leveraging on bank credit to the private sector is useful for boosting private investment in Sierra Leone. However, there is strong need for an end to higher global uncertainty, as it is inimical to the positive impact bank credit has on private investment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Private Investment, Macroeconomic Uncertainty, Bank Credit, Autoregressive Distributed Lag
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers

References

Angiwe and Joshua ( 2019), “An empirical examination of the Determinants of Private Investment in Nigeria”, Journal of Economics and Sustainable Development, vol.10, No.2 p. 98-107.

Garikai, B. W and Nyoni, T (2017), “An Empirical Analysis of the Determinants of Private Investment in Zimbabwe (April 29, 2017).” Dynamic Research Journals' Journal of Economics & Finance (DRJ-JEF), Vol. 2(4), pp. 38-54, April 2017.

Hailu, D.B and Debele, F. “The Effect of Monetary Policy on the Private Sector Investment in Ethiopia: ARDL Co-Integration Approach.” Economics. Vol. 4, No. 2, 2015, pp. 22-33.

Lucas, R (1990), “Endogenous Technological Change,” Journal of Political Economy, vol.98 p.71-103.

Oshikoya , T. W. 1994. “Macroeconomic determinants of domestic private investment in Africa: An empirical analysis”. Journal of Economic Development and Cultural Change, Vol. 42: 573-96.

Ouattara, Bazoumana (2004), “Modelling the long run determinants of private investment in Senegal,”CREDIT Research Paper, No. 04/05, The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT).

Romer, P.M (1986), “Increasing Returns and Long-Run Growth” Journal of Political Economy, vol.94 p.1002-37

Serven, L(1998), Mcroeconomic Uncertainty and Private Investment in LDCs: An Empirical Investigation World Bank. Suhendra I and Anwar C.J ( 2014), “ Determinants of Private investment and the Effects of Economic Growth in Indonesia ”, GSTF International Journal on Business Review, vol. 3, No.3, June 2014. p.128-133.