Interest rate liberalization and economic growth nexus: does corruption matter?

Abstract

Purpose This paper aims to examine the impact of interest rate liberalization on economic growth and the relevance of corruption in the five selected sub-Saharan African countries. Design/methodology/approach The study used the modified version of Driscoll and Kraay’s model by Hoechle, which solved the effects of cross-sectional dependence and heteroscedasticity. Findings The findings reveal a positive impact of the index on economic growth, and it was found that foreign direct investment (FDI) and credit to private sector by banks (CPSB) all stimulate economic growth. The interaction terms of corruption with FDI and CPSB indicate negative effects that show how corruption erodes the benefits of liberalization. Finally, the paper recommends the pursuit of appropriate policies with the sole aim of eradicating corruption and providing a conducive environment for business. Originality/value The paper developed a composite domestic financial liberalization index to capture the timing and essential dimensions of the reform process. The study investigates the effect of interest rate liberalization on economic growth and the relevance of corruption. Most of the recent and past studies only examined the impact of interest rate reforms on growth without investigating the relevance of corruption.

Domestic financial liberalization and economic growth nexus: the role of corruption

“…These imply that an increase in labour hampered growth in SSA economies. Our results lend support to studies by Law and Azman-Saini (2013), Haruna and Bakar (2020) and Naveed and Mahmood (2017). It goes against studies by Hye and Wizarat (2013).…”

“…These imply that capital negates growth. The outcome is in line with studies by Haruna and Bakar (2020) and E. Owusu and Odhiambo (2015). It runs contrary to studies by Naveed and Mahmood (2017) and Law and Azman-Saini (2013).…”

“…The study explained the theoretical methodology based on the linked between financial deregulation and growth, using the method of Haruna and Bakar (2020) and Naveed and Mahmood (2017). The interaction between the consumer, firms and financial sector will determine the rate of growth of output, using the process of optimization based on budget constraints, consumers maximize their utility function.…”

“…This confirms our theoretical underpinning of Mckinnon and Shaw (1973). The outcome is in line with Naveed and Mahmood (2017) and Haruna and Bakar (2020). Table 7 presents the estimation results of the interaction model.…”

Economic and governance drivers of global remittances: a comparative study of the UK, US, and UAE to India

“…However, the existing literature presents a variety of findings regarding the relationship between economic growth, corruption control, employer assistance and remittance outflows. Some studies, such as Haruna and Abu Bakar (2020), Khan et al (2019) and Snudden (2019), support the notion that economic growth, control on corruption and availability of employer's help contribute to an increase in remittance outflows. Contrary to the aforementioned assertion, a separate body of research conducted by Ajide and Olayiwola (2020) as well as Alharbi (2022) challenges this claims.…”