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 of 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 a 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
H Social Sciences (General), HG Finance