Effects of Interest Rates on Socioeconomic Prosperity in Sub-Saharan Africa

Abstract

Socioeconomic prosperity remains a critical priority for many countries in the Global South, particularly in Sub-Saharan Africa, where fluctuating interest rates pose significant challenges. This paper examines the impact of interest rates on socioeconomic prosperity across 38 Sub-Saharan African (SSA) countries from 2003 to 2024, drawing on secondary data from the World Development Indicators. Employing fixed effect models and system generalized method of moments (GMM) to address robustness and potential endogeneity issues, the findings indicate a significant association between interest rates and improvements in socioeconomic prosperity. These results are consistent across estimation methods and align with the perspective that favorable interest rate adjustments enhance productivity. Key policy recommendations emphasis the need to strengthen monetary policy transmission mechanisms through measures such as boosting banking sector competition, enhancing credit information systems, refining regulatory frameworks, and mitigating risk premiums through credit guarantee schemes and improved collateral mechanisms.