Transitioning from Interest Rate to GDP Growth Rate for More Sustainable Equitable Economy

Exiting literature and central banks have recently raised concerns about the ominous overlooked threat of growing global debt, and its fundamental role in financial crises and economic instability. This paper develops and models an alternative economic theory that calls for a paradigm shift from the prevailing debt-based financial economy. Through a structured literature review and conceptual analysis, the paper explores the relationship between the traditional interest-based financial economy and economic injustice and instability. The paper then through an econometric analysis of data collected from 189 countries tests its conceptualised theory advocating a gradual transition from the deb-based financial economy. The results provide three important contributions. Firstly, the results contribute to the field of economics and finance by providing a conceptual and theoretical framework for examining the interaction between the financial economy and economic equity. The paper introduces a conceptualisation of what it coins as the Equitable Optimality Economic Theory, which replaces interest rate with profit rate. Secondly, the paper extends the debate in the literature about debt theories and its impact on the financial economy by arguing that a shift towards debt-balanced and eventually debt-free financial economy provides a more equitable and stable economic system. Thirdly, the econometric modelling demonstrates that such a change would lead to improved economic growth, reduced debt levels, enhanced financial stability, and the inherent nature of profit rates provides a natural buffer against economic downturns. The study concludes by proposing a practical roadmap for this economic transition in gradual and steady approach.