Fiscal and monetary policy dynamism in the Sub-Saharan Africa frontier markets

Abstract

This paper investigates the relationship between fiscal and monetary policies on economic growth using countries within the Sub-Saharan Africa Frontier Markets (SSAFMs). In other words, the paper explors the dynamism of fiscal and monetary policy on economy growth in the Sub-Saharan Frontier Markets (SSAFMs). A balanced panel of five countries in the SSAFMs, for a period of 28 years (1985-2012), were used for the estimation. The Granger Causality test as well as the causality testing procedure due Dumitrescu-Hurlin (D-H) was used to establish causalities. To analyze the relationship between fiscal and monetary policy measures on growth the pooled mean group (PM G) estimates and the mean group (MG) estimator results were computed. The study finds that that monetary policy (Granger) causes fiscal policy; stated differently, monetary policy has been the dominant force accommodating the challenging fiscal stance in the SSAFM. Future studies could focus on the effect of macro-prudential policies on economic growth. It is recommended that appropriate monetary policies could be used to address the vulnerabilities that may arise out of the integration of the SSAFMS into the global financial market. The main value of this paper is to empirically project the dynamism of fiscal and monetary policy on economy growth in the Sub-Saharan Frontier Markets (SSAFMs)