Private capital formation and economic growth in Africa: the role of monetary policy

The study seeks to examine the role monetary policy plays on the impact of private capital formation on economic growth in Africa. By employing the dynamic system GMM for African countries over the period, 1999-2021, the study shows that reduction in monetary policy rates by a basic point leads to an increase in the level of private capital formation. The empirical results support a negative impact of monetary policy on economic growth, suggesting that countries that tighten their policy rates hinder economic growth. We find a negative impact of private capital formation on economic growth. However, the study provides evidence to support that monetary policy is an important tool employed by monetary authorities to reduce the negative impact of private capital formation on economic growth. Therefore, policymakers should continue to maintain and improve the current monetary policy rates to tame the reductive impact of private capital formation and economic growth.