Public Investment Financed by Seigniorage, Money Supply Control and Inflation Dynamics in Sub-Saharan African Countries

In this study, we attempt to construct an overlapping generations model designed to theoretically analyze the macroeconomic situation of sub-Saharan African countries. Our aim is to examine the conditions necessary for the effective functioning of infrastructure development financed by seigniorage and monetary control policies in some sub-Saharan African countries with stagnant macroeconomic performance. We also consider the implications of our model in terms of inflation and population aging. As a result, when the government selects the monetary growth rate that maximizes the long-term growth rate of gross domestic product (GDP), the absolute value of the monetary growth rate elasticity of the private capital--public capital ratio must be equal to the reciprocal of the private capital elasticity of GDP, which is greater than 1. Thus, seigniorage per se is not the cause of economic stagnation in some sub-Saharan African countries. If maximizing social welfare is equivalent to maximizing the long-term growth rate of GDP in terms of selecting the public investment share, then the public investment share elasticity of the private capital--public capital ratio is zero. Moreover, when the initial value of the private capital--public capital ratio is sufficiently low (high) level, inflation (deflation) occurs during the transition process to a steady state. Furthermore, population aging does not necessarily constitute a bottleneck for economic growth in sub-Saharan African countries.