Interest Rate and its Threshold Effect on Private Investment: Evidence from Ghana

Solomon Luther Afful and Kofi Kamasa

African Journal of Economic Review, 2020, vol. 08, issue 2

Abstract: This paper investigates the effect of interest rate on private investment and determine the threshold level beyond which interest rate becomes detrimental to private investment in Ghana. The paper employed annual time series data from 1986-2016. To investigate the effect of interest rate on private investment, the paper employed the autoregressive distributed lag (ARDL) model, while the quadratic function and conditional least square procedures were employed to estimate the interest rate threshold. Results from the ARDL model revealed positive long and short run effect of interest rate on private investment, thus confirming the McKinnon-Shaw hypothesis in Ghana. However, results from the quadratic function and conditional least square model found the threshold of 23.59% and 24% respectively, beyond which interest rate impacts negatively on private investment in Ghana. Thus, the paper recommends the deepening of the financial sector reforms, improving competition in the financial sector as well as maintaining macroeconomic stability.

Keywords: Financial; Economics (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/304712/files/Afful_20200704.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:afjecr:304712

DOI: 10.22004/ag.econ.304712

Access Statistics for this article

More articles in African Journal of Economic Review from African Journal of Economic Review
Bibliographic data for series maintained by AgEcon Search ().