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ABSTRACT:

This paper investigated the inflation threshold that ensures financial development fosters industrial growth for a panel consisting of five (5) West African Monetary Zone (WAMZ) countries. The study examined the inflation threshold in the finance-industrial growth relationship from 1990 to 2022. Through the Pooled Mean Group (PMG), panel unit root and cointegration, the study established that a nonlinear inflation threshold exists in the relationship. The PMG result indicate evidence of an inflation threshold estimated as 21.7451% and beyond which the benefits of higher industrial growth as the financial system develops and become efficient turns negative. By policy implication, this support the perception that financial development only works in generating higher rate of industrial growth only when inflation does not exceed or is below 21.7451%. Furthermore, the study also find that trade openness and natural resource rents does foster industrial growth, as exchange rate depreciation and population growth are harmful to industrial output expansion. The study recommends the pursuant of price stability at a level below 21.7451% by adopting an inflation targeting framework.

KEYWORDS:

Financial Development, Industrial sector growth, Inflation, Threshold

JEL Classification:

𝐺20, 𝑂40, 𝐿60, and 𝐸31

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