Microfinance Institutions and Productive Capital Accumulation Dynamics in Côte d’Ivoire

Abstract

This paper investigates the role of microfinance in promoting productive capital accumulation in Côte d’Ivoire. Productive capital accumulation is proxied by Gross Fixed Capital Formation (GFCF) as a percentage of GDP, which captures investment in productive assets such as machinery, equipment, and infrastructure. While the existing literature has predominantly focused on the microeconomic impacts of microfinance, empirical evidence on its macroeconomic contribution to investment remains limited, particularly in the Ivorian context. This study seeks to fill this gap. The empirical analysis relies on annual data covering the period 1994–2024, drawn from the BCEAO’s reports on Decentralized Financial Systems and the World Bank’s World Development Indicators database. An Autoregressive Distributed Lag (ARDL) model is employed to examine both the short-run and long-run relationships between GFCF and its key determinants, namely microfinance credit, gross domestic savings, and inflation. The findings indicate that, in the long run, a one-percentage-point increase in microfinance credit raises GFCF by approximately 0.14 percentage points, whereas a 1% increase in gross domestic savings increases productive investment by 0.39%. In the short run, microfinance credit also exerts a positive effect on GFCF. Furthermore, the estimated error-correction coefficient (-0.53) suggests that nearly 53% of short-run deviations from the long-run equilibrium are eliminated within one period, indicating a relatively rapid adjustment process. By contrast, inflation exerts a statistically significant negative effect on productive investment.

These results suggest that microfinance constitutes a complementary source of investment financing, particularly for individuals and enterprises excluded from the formal banking sector. They also underscore the crucial role of domestic savings and macroeconomic stability in supporting capital accumulation. The study therefore advocates policies aimed at strengthening financial inclusion, enhancing domestic savings mobilization, and maintaining price stability in order to foster productive investment and support the structural transformation of the Ivorian economy.

JEL Classification: G21; O16; C32; O55.
Paper Type: Empirical Research