International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Impact of Inflation on Corporate Investment in the Sub-Saharan African Countries: An Empirical Analysis of the West-African Monetary Zone
Onyemaechi Joseph Onwe, Raji Rahman Olarenwaju

This paper focuses on study of the adverse effects of inflationary pressures on corporate investment, with special emphasis on the West-African monetary zone (WAMZ). We recognised the role of corporate investment in economic development, with a proposition that a major problem with corporate investment in the West-African sub-region is frequent increases in inflation rates and their negative impacts on capital accumulation. The study aimed at unfolding the short-and long-run effects of inflation on corporate investment. We were guided by the research question: “Can the sub-Saharan African countries sustain investment-oriented growth policies in the face of rising inflationary policies?” Our methodology involved the use of error correction mechanism (ECM) in the analysis of factors affecting the rate of corporate investments in selected countries within impacts on corporate investment; and finally, the short-run impact of financial development on corporate investment is not clear in the WAMZ. Based on these, the study concludes that the short-run dynamics of inflation and interest the West-African monetary zone. The analytical model followed the Cobb-Douglas production principles, and the analytical results can be summarized as follows: first, a long-run positive relationship exists between inflation and corporate investment and a short-run negative relationship between inflation and corporate investment; secondly, the short-run dynamics of the economic environment in the WAMZ indicated that real rates of interest, government spending, and relative prices of capital goods are statistically insignificant in determining the level and rate of corporate investment in the selected countries within the West-African monetary zone; third, economic growth does not have significant rates in the West-African monetary zone appear to be associated with economic impacts that are contrary to theoretical expectations. There is a need therefore, to re-examine the theoretical relationships between corporate investment and such explanatory variables as real rates of interest, government spending, and relative prices of capital goods.Our analytical results and conclusions suggest the following recommendations: (i) a need for alternative theories explaining economic behaviours in respect of corporate investment in the West-African sub-region; (ii) a need for emphasis on both appropriate inflationary policies and economic actors that can influence the success of such policies; and, (iii) the need for researchers to re-examine the theoretical relationships between government spending, real interest rates, and relative price of capital and corporate investment in developing countries in general and specifically, the West-African sub-region.

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