Effect of Monetary Policy on the Economy of Developing African Economies: Evidence from Nigeria, Kenya and South Africa: 1986-2016


Faculty: Management Sciences
Department: Banking And Finance


Anaemena, C. H.
Ibenta, S. N.
Adigwe, P. K.


Monetary policy is a key factor that’s used to direct economic development of developing African economy. This study examines the effect of monetary policy on the economy of developing African economies; evidence from Nigeria, Kenya and South Africa economies. The objective of this study is to investigate the effect of monetary policy in Cash Reserve Ratio (CRR), Interest Rate (INTR), Inflation Rate (INFR) and Money Supply (M2) on economic development variables in Gross Domestic Product (GDP), Market Capitalization (MC), Manufacturing Output (MU) and Gross National Income (GNI). The study used secondary data obtained from World Bank, IMF and the Central Bank of respective selected countries and subjected them to Ordinary Least Square (OLS), Granger Causality test and Generalized Least Square (GLS) Panel Data Analysis techniques, to test the interaction between independent variables namely CRR, INTR, INFR and M2 and dependent variables in in GDP, MC, MU and GNI.at the 10% level of significance. The findings amongst others show that monetary policy in CRR, INTR, INFR and M2 had no significant effect on GDP, MC, MU and GNI in Nigeria and Kenya but there is significant effect of monetary policy in South Africa; while in the selected African developing economies’ pooled panel result indicate that Monetary policy variables used had positive but insignificant effect on GDP, MC, MU and GNI. However, the result further discovered that there was a significant relationship between monetary policy and economic development of developing African economies. Thus, the study concludes that Monetary policy does not affect stock economic development in developing African economies rather monetary policy have significant relationship with economic development of African developing economies. Hence, the study recommends among others that monetary regulatory authority of the selected developing African economies should reduce reserve ratio so as to reduce interest rates on loan and improve money supply to facilitate enhanced economic activities and economic growth at large.