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Real deposit rate and credit supply nexus in ECOWAS

Ngozi Adeleye (), Michael Adusei (), Aminat Olohunlana (), Opeyemi Akinyemi-Babajide (), Arumugam Sankaran () and Abdul Jamal ()
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Michael Adusei: Kwame Nkrumah University of Science and Technology
Opeyemi Akinyemi-Babajide: Covenant University
Arumugam Sankaran: Pondicherry Central University
Abdul Jamal: The New College

SN Business & Economics, 2022, vol. 2, issue 2, 1-24

Abstract: Abstract The relationship between real deposit rate and credit supply is interrogated with panel data (1980–2015) from ten Economic Community of West African States (ECOWAS) using dynamic common correlated effects mean group (DCCE-MG) and pooled mean group (PMG) estimators. The results show that real deposit rate has a linear positive long-run impact on credit supply for the full and sub-samples of Communauté Financière d'Afrique (CFA) and non-CFA franc countries, while at country levels, the relationship is mixed with varying signs. Similarly, the Dumitrescu–Hurlin non-causality (2012) test shows that real deposit rate Granger-causes credit supply in the long run. Overall, the findings support the McKinnon (Money and capital in economic development, 1973) and Shaw (Financial deepening in economic development, 1973) hypothesis that interest rate is an essential ingredient in the intermediation role of the financial system and suggests that depositors are incentivised to give up present consumption by saving at high deposit rates.

Keywords: Domestic credit; Deposit interest rate; Dynamic common correlated effects; Pooled mean group (search for similar items in EconPapers)
JEL-codes: E43 E44 G18 G21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43546-021-00194-y

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