Interest Rate Behaviour And Economic Development: Evidence from Non-Oil Resource Intensive Sub-Saharan African Countries

Abstract

This study assessed the effect of interest rates on the economic development of 14 non-oil resource-intensive countries in the Sub-Saharan African countries. With a pooled data of 10 years for lending rate, savings deposit rate, real interest rate and domestic credit to private sector, the study examined the effect of interest rate changes on the gross national income per capita using a random effect panel least squares (PLS) regression. Panel Granger causality analysis was also used to ascertain whether interest rate caused changes in economic development or vice-versa. Results of the preferred model (random effect PLS) revealed that the effect of lending rate, though positive on economic development was insignificant. However, savings deposit rate exerted a significant negative effect on economic development. The negative effect of real interest rate and domestic credit to private sector were insignificant. The study concludes by observing that interest rates management has not facilitated sustainable economic development in the selected SSA countries. Rather, the only significant effect was a negative. This was also attested to by the causality test result, which revealed a no-causality situation between interest rate and economic development. The study recommends a systematic reduction in savings deposit rate and a more development-oriented lending rate policy.