: 10.56472/25835238/IRJEMS-V5I7P107
Fantessi Amavi Agbélénko, Symon Kibet Kiprop. "Financial Openness, Financial Institutions and Domestic Investment: Does Credit Expansion consistently stifle domestic Investment in the West African Economic and Monetary Union?" International Research Journal of Economics and Management Studies, Vol. 5, No. 7, pp. 61-68, 2026. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V5I7P107
Despite the impressive empirical research on the link between financial openness and economic growth, limited research has focused on the issue of financial openness, credit to the private and public sector, and domestic investment. This study therefore attempts to fill this gap in the existing literature by examining the impact of financial openness and credit to the private and public sector on domestic investment in the West African Economic and Monetary Union (WAEMU) from 1990 to 2020. Unlike previous empirical studies, this study employed both the Driscoll-Kraay standard errors method and the Common Correlated Effect Mean Group estimator, which account for cross-sectional dependence and heterogeneity issues, which are not adequately addressed in previous studies. The findings of the study revealed that financial openness and credit to the private sector have a positive and statistically significant influence on domestic investment in WAEMU countries. In contrast, credit to the public sector, though insignificant, undermines investment in the region. Further, inflation, gross domestic product growth, trade openness, and real exchange rate depreciation impact positively and significantly on investment in the countries under investigation. Moreover, the interaction term has a strong negative effect on domestic investment. This means a higher inflation rate dampens the positive effect of private credit on investment through a tight monetary policy channel, which in turn may undermine demand for credit and investment. This study therefore recommends that WAEMU countries develop strategies and policies that shield their economies from external shocks and influences of the credit market with a view to boost domestic investment in the region.
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Credit to Private And Public Sector, Domestic Investment, Driscoll-Kraay Standard Errors Method and Common Correlated Effects Mean Group Estimator, Financial Openness.