REAL INTEREST RATE AND PRIVATE CONSUMPTION EXPENDITURE: EMPIRICAL EVIDENCE FROM SELECTED COUNTRIES IN AFRICA (1980 - 2018)

Salami Dada Kareem, Musibau O. Ogundeji, Kehinde O. Atoyebi

Abstract


This study examines the trajectory of consumption series in the five selected countries in Africa and determines the size of the effects of real interest rate on private consumption in the selected countries. The study intends to find out whether macroeconomic variables significantly affect private consumption more than interest rate between the period of 1980 and 2018. The data were sourced from the World Bank development indicators on interest rate, money supply, and banking sector credit to the private sector, et cetera. The Generalized Moment Method was used to examine the effects of interest rate on private consumption expenditure in Africa. Findings from the study revealed that interest rate significantly affects private consumption in Africa and specifically, the results showed that bank credit to private sector has significant negative effect on private consumption expenditure in Africa. Moreover, that bank credit to private sector co-integrates with private consumption expenditure both in the long and short-run in Africa. The study therefore recommends the need for the government to provide enabling environment for the private sector and since credits granted to private sector by the commercial banks enhances the level of consumption, it is necessary for the government to embark on policies that are welfare enhancing for the private sector.


Keywords


Private Consumption, Real Interest Rate, Money Supply, Five Selected African Countries

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