Lending Rate, Exchange Rate and Household Consumption Relations in Sub-saharan Africa: Mean Group Approach

doi:10.21203/rs.3.rs-73139/v1

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Lending Rate, Exchange Rate and Household Consumption Relations in Sub-saharan Africa: Mean Group Approach

https://doi.org/10.21203/rs.3.rs-73139/v1

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Household consumption expenditure in Africa to the world aggregate is comparatively little, considering the population of the region. But empirical credence that elucidates estimated elasticities of the exchange rate, lending rate, and consumption relations remains dimply discerned in sub-Saharan Africa (SSA) amidst a high population growth rate. Therefore, this paper present new insights into the causative structure of the cost of consumer credit and exchange rate management as leverage for mass consumption in Africa. We rely on the mean group estimator to analyse the panel data with a sample of 37 African countries in 2008 through 2017. We found that lending and exchange rate induces positive changes in household consumption in SSA. Efficient management of the cost of consumer credit and stability of the exchange rate may significantly improve consumption in the region. Policy implications were discussed.

JEl Classification: E21; E43; F31; C21; C23

Other Economics

Household consumption

Lending rate

Exchange rate

Mean group

Panel data

Table 1: Descriptive Statistics

	lnRHCE	LRT	EXCR	IPD	lnRPCI
Mean	22.595	13.421	618.937	108.826	7.144
Median	22.595	10.988	592.610	106.190	7.038
Maximum	26.695	65.420	3611.220	153.452	9.673
Minimum	17.985	2.450	3.745	72.079	5.808
Std. Dev.	1.553	11.109	433.267	15.803	0.946
Skewness	-0.046	2.157	3.729	0.478	0.772
Kurtosis	4.275	8.747	21.686	3.322	2.607
Jarque-Bera	25.196	796.059	6240.829	15.69	39.110
Probability	0.000	0.000	0.000	0.000	0.000
Observations	370	370	370	370	370

Table 2: Correlation Results

	lnrhce	lrt	excr	ipd	lnrpci
lnrhce	1.000


lrt	0.080	1.000
	1.535

excr	0.021	0.135	1.000
	(0.421)	(2.614) *

ipd	-0.052	-0.262	-0.123	1.000
	(-0.995)	(-5.200) *	(-2.379) *

lnrpci	0.266	-0.154	-0.195	0.137	1.000
	(5.298) *	(-2.982) *	(-3.807) *	(2.655) *

* indicate "t" distribution at 5% level of significance

t-statistic is in parenthesis.

Table 3: Slope Homogeneity Test

Table 4 Cross-sectional dependence Test

Type of CD Test	CD Test Value	p-value	Frees LoS	Frees CV	Frees TS
Pesaran	43.359	0.000*
Friedman	183.009	0.000*
Frees			10%	0.2559
Frees			5%	0.3429
Frees			1%	0.5198
Frees TS					13.585

*indicate 1% level of significance

CD – cross-sections; LoS – level of significance; CV – coefficient value; TS – test statistic

Table 5: Results of Fixed and Random Effects

	Coefficients	Coefficients	P-value	P-value
	Fixed Effect	Random Effect	Fixed Effect	Random Effect
Variables
lrt	-0.008314	-0.007996	0.000*	0.000*
excr	-0.000092	0.000105	0.223	0.156
lnrpci	0.949317	0.892669	0.000*	0.000*
ipd	-0.005607	-0.005505	0.000*	0.000*
_cons	16.47977	16.86153	0.000*	0.000*

rho	0.99213199	0.99195489
F-test u_i =0	p-value = 0.000*

*; indicate 1% level of significance

Table 6: Hausman Test: Between Fixed and Random Models

Variable	b (fe)	B(re)	b-B difference	SE
lrt	-0.008314	-0.0079958	-0.0003182	0.0002411
excr	0.0000917	0.0001054	-0.0000137	0.0000116
ipd	-0.0056069	-0.0055049	-0.000102	0.00000988
lnrpci	0.9493171	0.8926689	0.0566481	0.0324035

Chi Sq; 4.77

Prob of Chi Sq: 0.3122

Table 7: Mean Group Result

Variables	Coefficient	P-value
lrt	0.228	0.010**
excr	0.031	0.000*
ipd	-0.002	0.283
_cons	4.175	0.004*

* and ** indicate 1% and 5% level of significance respectively

lnrt - lending rate; lnexcr - log of exchange rate; ipd – implicit price deflator; _cons - constant

**Table 8 was omitted by the authors in this version of the paper**

Table 9: Pesaran (2015) test for weak cross-sectional dependence.

CD statistic	P-value
16.181	0.000*

H₀: errors are weakly cross-sectional dependent.

* indicates 1% level of significance

DATAHHCELendingandExchangerates.xlsx

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Lending Rate, Exchange Rate and Household Consumption Relations in Sub-saharan Africa: Mean Group Approach

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