Journal of Economics and Development Studies

Empirical Testing of the Gibson Paradox in Selected African Countries
Yaya Keho

Abstract
This study examines the relationship between nominal interest rates and prices in ten African countries. The objective is to test for the validity of the Gibson paradox in the African context. Recognizing the possibility of spurious regression results, we first undertook unit root tests and found that the variables are I (1) series. Next, we employed the bounds testing approach to co integration. The results provide empirical support for the Gibson paradox in seven out of the ten countries: Cote d’Ivoire, Gambia, Ghana, Kenya, Nigeria, Senegal and South Africa. This suggests that nominal interest rate is an effective tool for the moderation of long-run general price levels. We found a negative relationship between interest rates and prices in Benin and Cameroon, and no significant relationship in Gabon.

Full Text: PDF     DOI: 10.15640/jeds.v3n3a2