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

Interest rate liberalization and economic growth nexus: does corruption matter? 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/approachThe study used the modified version of Driscoll and Kraay’s model by Hoechle, which solved the effects of cross-sectional dependence and heteroscedasticity.FindingsThe 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/valueThe 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Crime Emerald Publishing

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

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References (74)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1359-0790
eISSN
1359-0790
DOI
10.1108/jfc-02-2020-0029
Publisher site
See Article on Publisher Site

Abstract

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/approachThe study used the modified version of Driscoll and Kraay’s model by Hoechle, which solved the effects of cross-sectional dependence and heteroscedasticity.FindingsThe 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/valueThe 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.

Journal

Journal of Financial CrimeEmerald Publishing

Published: Aug 5, 2021

Keywords: Interest rate liberalization; Economic growth; Corruption; Sub-Saharan Africa

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