Global Interest Rate Dynamics and Their Implications for the Cost of Capital: A Systematic Literature Review Comparing Developed and Developing Countries
Published:
2026-05-24Downloads
Abstract
This study aims to analyze the dynamics of global interest rates and their impact on the cost of capital. Using the Systematic Literature Review (SLR) method, this study identifies, evaluates, and synthesizes scientific literature published between 2020 and 2025, and integrates macroeconomic data from the Trading Economics database. The analysis shows that the global Weighted Average Cost of Capital (WACC) has experienced a significant increase, from an average of 7.00% in 2020 to 8.00% in 2024, driven by increases in the risk-free interest rate and market risk premium. The findings of this study reveal asymmetric heterogeneity in impacts: interest rates in developed countries are more influenced by global and regional factors (above 50%), while in developing countries, domestic factors still dominate (77.9%), although vulnerability to fiscal spillovers from the United States remains high. In addition, high interest rates are found to hinder investment in strategic sectors, particularly capital-intensive renewable energy projects. This study concludes that companies need to adopt artificial intelligence (AI)-based financial management systems for real-time monitoring of capital costs and strengthening ESG performance to mitigate funding risks amid global market volatility.
Keywords:
Global Interest Rates Cost of Capital WACC Systematic Literature ReviewReferences
Aizenman, J., Eldén, W., Jinjarak, Y., Uddin, G. S., & Widholm, F. (2024). International spillovers of U.S. fiscal challenges. NBER Working Paper No. 32868
Arhinful, R., Mensah, L., Mohammed Amin, H. I., & Obeng, H. A. (2024). The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: evidence from non-financial companies listed on the Frankfurt Stock Exchange. Future Business Journal, 10(1), 99. https://doi.org/10.1186/s43093-024-00384-8
Asem, E., Fan, R., & Tian, G. (2025). ESG and the cost of capital: Insights from an AI-assisted systematic literature review. Dhillon School of Business, University of Lethbridge.
Ayuen, A. J. M., Kaluge, D., & Satria, D. (2024). Analyzing the effects of interest rates, inflation, and ex-change rates on stock market performance: A comparative study of Indonesia and Japan. Journal of Indonesian Applied Economics, 12(1), 13-26. https://doi.org/10.21776/ub.jiae.2024.012.01.2
Beltrame, F., Grassetti, L., & Zorzi, G. (2023). Cost of capital for private firms. Theoretical Economics Let-ters, 13, 535-548. https://doi.org/10.4236/tel.2023.133034
Caldara, D., Ferrante, F., Iacoviello, M., Prestipino, A., & Queralto, A. (2024). The international spillovers of synchronous monetary tightening. Journal of Monetary Economics, 141, 127–152.
Cuestas, J. C., Monfort, M., & Ordóñez, J. (2024). Gas price shocks, the current account, and the real ex-change rate: An empirical analysis for the EU. Finance Research Letters, 60, 104840.
Martinez, O., Jagannathan, O., Laurent, M., & Calloway, W. (2025). Quantitative approaches to evaluating the cost of capital in financial decision-making. Brainae Journal of Business, Sciences and Technology, 9(3), 224-245
Organisation for Economic Co-operation and Development. (2025). G20 GDP growth. https://www.oecd.org
Purnomo, D. K., & Wibowo, W. (2024). The effect of interest rates and inflation on economic growth in ASEAN-5 countries. Journal of Developing Economies, 9(2), 217-229. https://doi.org/10.20473/jde.v9i2.52413
Rey, H. (2023). Global financial cycle. Review of Economic Studies. https://doi.org/10.1093/restud/rdac055
Schäfer, A., & Semmler, W. (2024). Greener and cheaper? Monetary policy in the era of inflation and high interest rates. Eurasian Economic Review, 14(1), 1–25. https://doi.org/10.1007/s40822-024-00266-y
Shambaugh, J. C., & Zhou, H. (2024). Interest rates across the world: Global, regional, and idiosyncratic fac-tors. Journal of Banking & Finance, 158, 107192. https://doi.org/10.1016/j.jbankfin.2024.107192
Snyder, H. (2019). Literature review as a research methodology: An overview and guidelines. Journal of Business Research 104, 333–339
Suzuki, H. (2024). Estimating the natural rate of interest for the emerging Asia. Journal of the Asia Pacific Economy. 30. 1-16. 10.1080/13547860.2024.2378529.
Trading Economics. (2026). Global interest rate data. https://tradingeconomics.com
Trading Economics. (2026). About us; Analytics - Indicators; Interest rate - Countries - List; API documenta-tion. https://tradingeconomics.com.
License
Copyright (c) 2026 Muhammad Iqbal Harahap, Ahmad Kodri Fauzi Hasibuan, Khaira Amalia Fachrudin
This work is licensed under a Creative Commons Attribution 4.0 International License.
