Investigating The Influence Of Interest Rate Liberalization On Private Sector Credit In The Waemu Region
Dr. Fatoumata Diarra
Department of Economics, University Felix Houphouet-Boigny, Abidjan, Ivory Coast
Dr. Moussa Koné
Department of Economics, University Felix Houphouet-Boigny, Abidjan, Ivory Coast
Abstract
The financing policies of African countries' development have historically been rooted in Keynesian economic theory, with low-interest rates and government control over the financial system aimed at stimulating investment and economic growth. However, these policies have often resulted in low or even negative real interest rates. This study draws on the seminal works of McKinnon (1973) and Shaw (1973) to argue that financial repression is a key factor hindering economic growth in developing nations.
Financial repression discourages savings due to their poor performance and inhibits the efficient allocation of capital by financial intermediaries. To foster economic growth, a shift towards financial liberalization is recommended. This entails removing interest rate caps, reducing compulsory set-asides, and eliminating directed credit programs, thereby allowing financial markets to operate freely and determine credit distribution based on market dynamics.
This research sheds light on the detrimental impact of financial repression on economic development in African countries and advocates for policy changes that prioritize financial market autonomy and efficiency