Credit and Investment in Benin’s Economic Growth: Insights from ARDL Analysis

This study examines the impact of credit and investment on Benin’s economic growth from 2000 to 2022, using the autoregressive distributed lag (ARDL) model. The analysis explores both short- and long-term relationships between Gross Capital Formation (GCF), Domestic Credit to the Private Sector (DOMCRED), trade openness (TRADE), exchange rates (EXRATE), Foreign Direct Investment (FDI), and inflation (INF). The findings reveal that 83.1% of GDP growth variance is explained by macroeconomic stability. Gross capital formation is a key driver of long-term growth, while inefficiencies in credit allocation limit the effectiveness of domestic credit. Exchange rate stability is vital for resilience, whereas trade openness shows adverse long-term effects, highlighting the need for diversification. The ARDL bounds test confirms a long-run equilibrium relationship among the variables. These results emphasize the need for policies aimed at improving credit allocation, stabilizing exchange rates, and promoting trade diversification to foster sustainable economic growth.