Impact of Some Monetary Policy Variables on Economic Growth: Empirical Evidence from Selected West African Countries

Abstract

The objective of this paper is to examine the impact of some monetary policy variables on economic growth in the panel of selected West African countries namely Nigeria, Ghana, Niger and Benin over a period of 1996 to 2016. For this purpose, three different panel data methods i.e. pooled least square, fixed effects and random effects have been used to test the validity of the relationship. Hausman (1978) specification tests were adapted and the test indicates that the random effect model is considered as the best model to examine the relationship among the variables. This implies that the variables are apparently influenced by individual effects only. The random effect model shows the presence of positive and significant relationship between money supply and economic growth which signify that increase in broad money supply in the economy of these countries will improve economic growth. The empirical evidence also indicates that exchange rate, inflation rate, interest rate and trade openness influence growth negatively. This implies that, an increase in exchange rate, interest rate, inflation rate and trade openness will lead to a decrease in economic growth. In order to achieve economic growth in these countries, there is the need to increase the broad money supply and control the level of inflation, exchange rate, interest rate and trade openness.