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Revisiting the Inflation-Growth Nexus: Evidence from Malaysia Using OLS Estimation

Author

Listed:
  • Noris Fatilla Ismail

    (Faculty of Business and Management, University Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman)

  • Nursyaza Aliah Radzi

    (Faculty of Business and Management, University Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman)

  • Alisha Nabila Aziram

    (Faculty of Business and Management, University Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman)

  • Ahmad Fudhil Mohd Zaini

    (Faculty of Business and Management, University Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman)

  • Ameerul Imran Idris

    (Faculty of Business and Management, University Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman)

Abstract

This research investigates the influence of inflation on economic growth, with particular focus on developing economies. Previous studies reveal that the relationship between inflation and growth is not uniform but instead varies depending on the country context and time period under review. Evidence from developing European nations shows that inflation exerts a slight negative impact on growth, whereas research conducted in Pakistan highlights a significant adverse effect of inflation on economic growth in both the short and long run. Conversely, another study covering the period 1980-2018 in Pakistan reported no meaningful effect of inflation or unemployment on economic performance. Given these mixed and sometimes contradictory findings, this study adopts a time series approach to explore the dynamics between inflation and economic growth, with Gross Domestic Product (GDP) employed as the dependent variable. The analysis relies on the Ordinary Least Squares (OLS) estimation technique, implemented through EViews software. To capture the relationship in greater detail, a semi-log linear regression model was utilized, incorporating inflation, interest rate, government consumption, and trade openness as explanatory variables. Additionally, robustness checks and the Ramsey RESET test were conducted to validate the stability and proper specification of the model. The empirical outcomes suggest that inflation exerts a substantial positive effect on economic growth, reinforcing the ongoing debate on macroeconomic stability and balanced policy intervention. Overall, the study underscores the importance of effective inflation management as a prerequisite for sustaining long-term economic growth in developing nations.

Suggested Citation

  • Noris Fatilla Ismail & Nursyaza Aliah Radzi & Alisha Nabila Aziram & Ahmad Fudhil Mohd Zaini & Ameerul Imran Idris, 2025. "Revisiting the Inflation-Growth Nexus: Evidence from Malaysia Using OLS Estimation," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(10), pages 1432-1441, October.
    • Handle: RePEc:bcp:journl:v:9:y:2025:i:10:p:1432-1441
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    References listed on IDEAS

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    1. EKINCI, Ramazan & TUZUN,Osman & CEYLAN, Fatih, 2020. "The Relationship Between Inflation And Economic Growth: Experiences Of Some Inflation Targeting Countries," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 24(1), pages 6-20, March.
    2. Anastasios Pappas & Nikolaos Boukas, 2025. "Examining Impact of Inflation and Inflation Volatility on Economic Growth: Evidence from European Union Economies," Economies, MDPI, vol. 13(2), pages 1-18, January.
    3. Jongrim Ha & Inhwan So, 2024. "The Economic Effects of Global Inflation Uncertainty," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 69-150, April.
    4. Bick, Alexander, 2010. "Threshold effects of inflation on economic growth in developing countries," Economics Letters, Elsevier, vol. 108(2), pages 126-129, August.
    5. Ndoricimpa Arcade, 2017. "Working Paper 249 - Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression," Working Paper Series 2359, African Development Bank.
    6. Eggoh, Jude C. & Khan, Muhammad, 2014. "On the nonlinear relationship between inflation and economic growth," Research in Economics, Elsevier, vol. 68(2), pages 133-143.
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