Capital Flows and Real Interest Rates: Empirical Evidence from West African Countries

To rejig the economy, nations tend to consider real interest rate ceilings. Incidentally, this tends to hurt middle- and low-income populations and corporate investors as it limits access to finance and reduces prices. However, when efforts are exerted to increase capital flows, it deepens better opportunities in enhancing economic prospects. This study examined the effect of capital flows on real interest rates of selected West African countries. The study adopted an ex post facto research design and evaluated the effect of capital flows on macroeconomic performance in W/A for 33 years (1991 to 2023). A purposive sampling technique was adopted. Data were extracted from the World Development Index (WDI) and the International Monetary Fund (IMF). The validity and reliability of the data were premised on the global recognition of WDI as a reputable source. Descriptive and inferential System Generalized Method of Moments (GMM) statistics were used to analyze the data at the 0.05 level of significance. The findings demonstrated that capital flows significantly had a joint effect on real interest rates in West Africa. Consequent to the findings, the study recommends that West African countries adopt pragmatic and holistic economic policies capable of attracting higher capital flows that should be maximized in stabilizing real interest rates in West African countries.