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The Nexus between Inflation and Economic Growth in Sub-Saharan Africa Countries.: An Empirical Study using VECM

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  • James Chindengwike

Abstract

Using time series data from 1970 to 2021, this study analyzed the relationship between inflation and economic growth in Sub-Saharan African countries. The Vector Error Correction Model (VECM) and Granger Causality techniques were used in the study, and the variable was the consumer price index. Inflation and economic growth are statistically significant and adversely connected in the long run but positively related in the short run, according to the research. Furthermore, the research causality test demonstrates a bidirectional link between economic growth and inflation, as well as a unidirectional relationship between economic growth and FDI. According to the report, Tanzanian policymakers adopt good monetary policies, tools, and institutions to ensure effective and controlled inflation by establishing a steady inflation goal while ignoring comprehensive fiscal measures. The study request urges the Tanzanian government to improve its priorities while strengthening policies such as cost cutting and budgetary consolidation. It also emphasizes that government spending should primarily include development projects that are launched and completed on time to avoid cost escalation.

Suggested Citation

  • James Chindengwike, 2023. "The Nexus between Inflation and Economic Growth in Sub-Saharan Africa Countries.: An Empirical Study using VECM," Journal of Global Economy, Research Centre for Social Sciences,Mumbai, India, vol. 19(2), pages 109-136, May.
    • Handle: RePEc:jge:journl:1921
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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