A Co-Integration Analysis of Interest Rate Spread and Corporate Bond Market Development in Selected African Economies
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This paper examines the relationship between interest rate spread and corporate bond market
development in thirteen African economies comprising Botswana, Egypt Mauritius Nigeria, Tunisia,
Cameroon, Kenya, Morocco, South Africa, Cote d’Ivorie, Ghana Namibia, Tanzania from 2004 and 2014
using fully modified ordinary least square (FMOLS) in an autoregressive distributive lag (ARDL)
framework. Subsisting literature suggests that in bank-based economies, interest rate spread could
adversely affect the potency of corporate bond market development; and thus limits the financial market
competitiveness. The result provides evidence that corporate bond issue, as proxy for financial
development is negatively influenced by interest rate gap in the short and long term. The result affirms
the ‘group interest’ theorem in these African economies leading to a deterrent in competitive financial
development. The ECM coefficient satisfies a priori expectation, affirms the short run dynamic
relationship, which implies long run equilibrium from the annual speed of adjustment, which is about 100
percent. The paper suggests policy recommendations for the reduction in interest rate, and thus the spread
to encourage the growth of corporate bond issues for a market-led financial development
Keywords
HB Economic Theory, HG Finance