Interest rate reforms and investment efficiency : evidence from two sub-Saharan African (SSA) countries

This study attempts to empirically investigate the relevance of financial reforms on investment efficiency in two sub-Saharan African countries - South Africa and Tanzania - using vector error-correction mechanism. The study seeks to answer one critical question. Is the mechanism through which financial liberalisation affect economic growth in the study countries based on the volume or efficiency of investment? Contrary to the results of some previous studies, the results of this study fail to find a strong empirical support for the positive relationship between real interest rate and investment efficiency in the study countries. The study concludes that the current financial liberalisation taking place in the two countries has not succeeded in transferring capital from projects with low returns to projects with high returns. (Sav Dev/DÜI)