Further test at lag four 4 was carried out and it only supported the first by also indicating a unidirectional causality running from inflation to economic growth. D sarlo distinguished professor of business economics dominican university of california abstract moderate inflation is an inevitable consequence of sustained economic growth. Inflation and economic growth in nigeria omoke journal of. The effect of inflation on economic new scholarlink research. This pdf is a selection from an outofprint volume from the national bureau. Impact of inflation and economic growth on unemployment in. A good performance of an economy in terms of per capita growth may therefore be attributed to the rate of inflation in the country.
Barro department of economics littauer center 120 harvard university cambridge, ma 028 and nber data for around 100 countries from 1960 to 1990 are used to assess the e. Japan is one country with a long period of nearly no economic growth, largely because of deflation. Department of economics and public policy, technical university of kenya, kenya. Specifically the bone of contention is that whether inflation is necessary for economic growth or it is detrimental to growth. Inflation and economic growth in nigeria omoke journal.
Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. This study investigates the impact of inflation on economic growth of nigeria. The effects of inflation on economic growth and on its macroeconomic determinants muhammad khan to cite this version. There exists a large debate in the relationship between these two macroeconomic variables both theoretically and empirically. In the 1960s, models of inflation and economic growth emphasized the portfolio. It finds evidence of a significant structural break in the function that relates economic growth to inflation.
The result is a growth in the interest share of the budget from one to five percent by 2038. Jun 27, 20 foreign direct investment fdi has been held to provide developing nations including nigeria with much needed capital for economic growth. The effect of inflation and interest rate on economic growth of nigeria includes abstract and chapter one, complete project material available the effect of inflation and interest rate on economic growth of nigeria abstract the gross domestic product growth is a long term rise in the capacity to supply increasingly diverse economic goods o its population. Economic growth, inflation, and unemployment are the big macroeconomic issues of our time. To analyze the data the model is formed by taking economic growth as dependent variable and four variables. In a developing country like nigeria, inflation has been one of. From this viewpoint, inflation is manifestation change of economic and society is chosen from the fast dynamic. E31, e52 abstract this paper presents new nonlinear regression estimates of the relationship. The break is estimated to occur when the inflation rate is 8 percent. That increases demand, which then creates demandpull inflation. It can enhance economic growth by mobilizing the resources of a country. Effects of government expenditure, taxes and inflation on.
D, fca department of accountancy, enugu state university of science and technology, enugu state, nigeria. Economic fluctuations and growth program, monetary economics program. Inflation and economic growth in india an empirical analysis. Threshold effects of inflation on economic growth in africa. Evidence from a dynamic panel threshold regression approach arcade ndoricimpaa auniversity of burundi, faculty of economics and management, po box 1280 bujumbura african development bank group. Nonlinear effects of inflation on economic growth by.
I included money supply and exchange rate to control their effects on the relationship between inflation and. Economic fluctuations and growth program, monetary economics program data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. Due to the controversial issues about economic growth and inflation, the investigator is highly interested to examine the relationship between inflation and economic growth in sub saharan africa countries ssa. Attempts to reduce unemployment have often been accompanied by a rise in inflation, and attempt to reduce inflation have usually led.
This move in monetary policymaking is firmly rooted in the belief, shared by. Evid ence from a growth equation, department of econ omics, university of hawaia i at monoa, honoulu, usa. For instance, structuralists believe that inflation is necessary for economic growth, but according to monetarists view, inflation is harmful to economic growth mallik and chowdhury, 2001. Threshold effects of inflation on economic growth in. This phenomenon is associated with unemployment and deficit economic spheres sousa, 2009. The effect of inflation on economic growth in qatar an empirical investigation. In other words, an economy s per capita growth rate is increasing in the gap between its longterm prospective gdp and its current gdp. Motivated by this controversial, this study examined the impact of inflation on economic growth and established the existence of inflation growth relationship. Feb 15, 2006 this paper examines the possibility of nonlinear effects of inflation on economic growth. Nigeria, and is an unwholesome development that has led to a. A few studies in the context of tanzania have already investigated the existence of a relationship between inflation and economic growth shitundu and luvanda, 2000. The intent of this paper is to explore the longterm determinants of interest rates in greater detail, and, in particular, the relationship between variations in interest rates and economic growth.
Impact of inflation and economic growth on unemployment in sri lanka. Preventing deflation during the global financial crisis that began in 2007 is one of the reasons the u. The question of the effect of inflation on economic growth is one of the issues that have been hotly debated in macroeconomics. For example, businesses expected higher interest rates and inflation in the 1970s. In a developing country like nigeria, inflation has been one of the. Nigeria, and is an unwholesome development that has led to a introduction. The tobin effect of inflation on economic growth of nigeria tobin, another neoclassical economist, 1965 developed mundells model further by following solow 1956 and swan 1956 in making money a store of value in the economy. New social group open its way to political grounds and economic activity and with resorting to inflation, attempt is made to strengthen the power and change distribution of income.
The results also revealed that inflation possessed a positive impact on economic growth through encouraging productivity and output level and on evolution of total factor productivity. I included money supply and exchange rate to control their effects on the relationship between inflation and economic growth. There exists a large debate in the relationship between these two macroeconomic variables. At the same time, president nixon imposed wageprice controls which slowed economic growth. It is shown that an increase in economic growth decreases inflation whereas inflation does not have significant effect on economic growth in the short run.
Inflation, economic growth, regression analysis, monetary policy jel codes. Thirdly, the relationship between inflation and different determinants of economic growth may also be intervened by the presence of certain variables such as effects of inflation on economic growth may be accelerated on account of capital formation in the economy. A crosscountry nonlinear analysis by robert pollin and andong zhu october 2005 keywords. Inflation below the first threshold affects economic growth positively but. The effect of inflation on economic growth in tanzania. The impact of economic growth and inflation on unemployment differs across economies depending on the structure of the labour market and the period under. Effect of inflation on the growth and development of the. Deputy governor, central bank of sri lanka during the three decades beginning from 1978, sri lanka had recorded on average an annual inflation rate of slightly over 11 percent. To achieve this objective, secondary data has been taken from central bank annual reports for the.
Based on the findings of this study, it was recommended that both fiscal and monetary policy measures be taken to reduce inflation rate in nigeria. Individuals in this model, substitute current consumption for future consumption by either. Evidence from a dynamic panel threshold regression approach arcade ndoricimpaa auniversity of burundi, faculty of economics and management, po box 1280 bujumbura. They find that domestic debt expansion has a positive longrun and significant effect on economic growth. Doguwa1 this paper reexamines the issue of the existence and the level of inflation threshold in the relationship between inflation and growth in nigeria, using three different approaches that provide appropriate procedures for estimating the threshold level. Abstract this paper examines the effect of inflation and economic growth on unemployment in sri lanka for the period 19902012. Nonlinear effects of inflation on economic growth by michael sarel. Even though the original data illustrate the absence of a clear relationship between inflation and growth over time, after using the baxter and king filter to extract the long run components of the data, a clear negative relation emerges between the two. This paper surveys the empirical evidence on the link between innovation and economic growth. Inflation and unemployment are closely related, at least in the shortrun. This paper examines the possibility of nonlinear effects of inflation on economic growth.
Inflation and economic growth in the long run sciencedirect. The effects of inflation on economic growth and on its. While some scholars, particularly those learning towards the keynesian and structural perspectives tend to believe that inflation is not harmful to economic growth, other scholars, particularly those in the monetarist tradition, argue that inflation is harmful to. The first test was conducted using lag two 2 and in the result unidirectional causality was seen running from inflation to economic growth. The economic growth, with the help of economic resource mobilization, supports corrective steps for the development and control of inflation and unemployment. Relationship between inflation and economic growth vikesh gokal subrina hanif working paper 200404 december 2004 economics department reserve bank of fiji suva fiji the views expressed herein are those of the authors and do not necessarily reflect those of the reserve bank of fiji. For example, in 1998 gdp growth rate was relatively high amidst the. An economic growth rate is the percentage change in the value of all of the goods and services produced in a nation during a specific period of time, as. Effect of domestic debt on economic growth in the east african community james ochieng babu1, symon kiprop1, aquilars m. A case study of tanzania faraji kasidi1 kenani mwakanemela2 abstract like several other countries both industrialised and nonindustrialised, one of the central objectives of macroeconomic policies in tanzania is to promote economic growth and to keep inflation at a low level. The relationship between inflation and economic growth is one of the most important macro economic controversies among the macro economists, policy makers and central monetary authorities of all the nations.
Economic fluctuations and growth program, monetary economics program data for around 100 countries from 1960 to 1990 are used to assess the effects of. In this analysis, a trivariate vector autoregressive var model is used, incorporating unemployment rate into the framework for analysis, we. You can view samples of our professional work here. Once the expectation of inflation sets in, its hard to eradicate. Government and household expenditure components, inflation and their impact on economic growth in namibia jacob m. The trend between inflation and economic growth in nigeria the facts and figures obtained from the imf world economic outlook report 2011 revealed that the nigerias gdp tends to be low when the inflation rates are high apart from a few years of the 80s. Abstract this paper surveys the existing literature on the relationship between inflation and economic growth in developed and developing countries, highlighting the theoretical and empirical indications. This paper tests the proposition that the growth rate of the economy and the level of inflation are negatively correlated in the long run. Pdf this paper surveys the existing literature on the relationship between inflation and economic growth in developed and developing countries.
Department of economics, egerton university, kenya, p. In this analysis, a trivariate vector autoregressive var model is used, incorporating unemployment rate. This is not an example of the work produced by our essay writing service. Given the determinants of the longrun position, an economy tends currently to grow faster the lower its gdp. The relationship between inflation and economic growth is one of the most popular macroeconomic issues among central bankers, policy makers and macroeconomists barro 1995. The study aims at evaluating the link between inflationary rate and economic growth in nigeria. Nonlinear effects of inflation on economic growth by michael.
The effects of inflation on economic growth and on its macroeconomic determinants. Salerno 2003 argues economic growth has occurred in periods of deflation. Timeseries data for the period 1990 2011 were used to examine the impact of inflation on economic growth. Relationship between inflation and economic growth in. Effects of foreign direct investment fdi on economic growth. A crosscountry nonlinear analysis robert pollin andong zhu october 2005 number 109 political econom y research institute university of massachusetts amherst workingpaper series gordon hall 418 n pleasant st. Foreign direct investment fdi has been held to provide developing nations including nigeria with much needed capital for economic growth. Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic. The study finds that the impact of inflation on economic growth varies from country to country and over time. The austrian schools broad understanding of deflation is underscored by the four definitions offered by salerno growth deflation, cashbuilding deflation, bank credit deflation, and confiscatory deflation. Saaed 1college of business administration american university in the emirates,united arab emirates 2algonquin college, ottawa, ontario, canada. Typically, this relationship has been analyzed using simple correlations and deterministic models.
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