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Interest rate reforms and economic growth: the savings and investment channel

Author

Listed:
  • Clement Moyo

    (Department of Economics, Nelson Mandela University)

  • Pierre Le Roux

    (Department of Economics, Nelson Mandela University)

Abstract

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. Furthermore, the ARDL bounds tests are conducted for the individual countries to test for cointegration. The results show that cointegration is detected in most countries for each one of the three specifications. Also, interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.

Suggested Citation

  • Clement Moyo & Pierre Le Roux, 2018. "Interest rate reforms and economic growth: the savings and investment channel," Working Papers 1813, Department of Economics, Nelson Mandela University, revised Mar 2018.
    • Handle: RePEc:mnd:wpaper:1813
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    File URL: http://repec.mandela.ac.za/RePEc/mnd/wpaper/paper.1813.pdf
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    Cited by:

    1. Hlalefang Khobai & Clement Moyo, 2021. "Trade openness and industry performance in SADC countries: is the manufacturing sector different?," International Economics and Economic Policy, Springer, vol. 18(1), pages 105-126, February.
    2. Obiora, Sandra Chukwudumebi & Zeng, Yong & Li, Qiang & Liu, Hao & Adjei, Peter Darko & Csordas, Tamas, 2022. "The effect of economic growth on banking system performance: An interregional and comparative study of Sub-Saharan Africa and developed economies," Economic Systems, Elsevier, vol. 46(1).
    3. Laxman Tandan & Ananta Raj Kafle & Khageshyor Khanal, 2022. "An Econometric Analysis on Interest Rate Reforms and Financial Deepening," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(3), pages 3-22.
    4. Rufaro Garidzirai, 2020. "The Contribution of Agricultural Production on Selected Sustainable Development Goals in the BRICS: A Panel Analysis," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 8(3), pages 154-167.

    More about this item

    Keywords

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    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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