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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Interest rate liberalization and economic growth in Zambia: a dynamic linkage
Author:Odhiambo, Nicholas M.ISNI
Year:2009
Periodical:African Development Review (ISSN 1467-8268)
Volume:21
Issue:3
Pages:541-557
Language:English
Geographic term:Zambia
Subjects:interest rates
financial policy
economic development
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8268.2009.00222.x/pdf
Abstract:This paper examines the dynamic impact of interest rate reforms on economic growth in Zambia, using two models in a stepwise fashion. In the first model, the efficacy of interest rate liberalization is examined by regressing the interest rate on the level of financial deepening. In the second model, the causal relationship between financial depth and economic growth is examined by incorporating savings as an intermittent variable in the bivariate setting, thereby creating a simple trivariate model. Using the cointegration-based error correction model, the study finds strong support for the positive impact of interest rate liberalization on financial deepening. In addition, the study finds that financial deepening, which results from interest rate liberalization, Granger causes economic growth. The results apply irrespective of whether the causality is estimated in the short run or in the long run. Other results show that: (1) lagged financial depth leads to further financial deepening; (2) savings and economic growth Granger cause each other; and (3) financial development Granger causes savings in the long run. Bibliogr., note, ref., sum. [Journal abstract]
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