THE EFFECT OF CREDIT TO THE PRIVATE SECTOR ON ECONOMIC GROWTH IN SIERRA LEONE
Abstract
Economic growth is important for poverty reduction, and it is of interest to all policymakers. Also, finance is important for boosting investment and hence growth and it takes various forms. The study therefore investigates the effect of bank credit to the private sector on economic growth in Sierra Leone. The study uses aggregate amount data on real Gross Domestic Product (GDP), credit by banks, and other control variables for the period 1992 to 2022. Variables are tested for the existence of unit roots and the Autoregressive Distributed Lag (ARDL) was used to test for cointegration and estimation of short-run and long-run models of growth. The results show that credit to the private sector has a positive effect on economic growth in Sierra Leone. Other results show that interest rates and inflation harm real GDP growth. The important policy implication is the need for the central bank to continue its financial stability efforts, the need for strengthened macroeconomic stability, and structural reforms that bind investment celebrate for more bank credit to the private sectors, in reducing to enhance growth.
JEL: O16, G21, E51, O55
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DOI: http://dx.doi.org/10.46827/ejefr.v8i1.1646
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