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Inflation and Economic Growth in Zimbabwe is there Any Inflation Threshold Level?

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  • Raynold Runganga

Abstract

This study examines the existence of threshold level as well as the relation between inflation and economic growth in Zimbabwe using annual data for the period 1981 to 2018. While the Dynamic Ordinary Least Squares (DOLS) shows that inflation has a negative impact on economic growth and the share of gross capital formation in gross domestic product has positive impact on economic growth, Engle-Granger test shows that there is long-run relationship between the variables. The conditional least squares shows that there is a non-linear relationship between inflation and economic growth. The threshold level of inflation above which additional increase in inflation slows economic growth is 4 per cent. Inflation below the threshold level of 4 per cent has significant positive impact on economic growth but this effect turns out to be negative when inflation rise above the threshold level of inflation. The findings also show that low inflation has a positive impact on economic growth. The study results imply that policy makers should ensure that inflation is kept below the threshold level of 4 per cent and this should be the inflation target in order to achieve higher economic growth.

Suggested Citation

  • Raynold Runganga, 2020. "Inflation and Economic Growth in Zimbabwe is there Any Inflation Threshold Level?," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 8(1), pages 1-10.
    • Handle: RePEc:oap:ijaefa:v:8:y:2020:i:1:p:1-10:id:306
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    Cited by:

    1. George Kosgei Kiptum, 2022. "Relationship between Kenya’s economic growth and inflation," SN Business & Economics, Springer, vol. 2(12), pages 1-16, December.
    2. Arvian Triantoro & Muhammad Zaheer Akhtar & Shiraz Khan & Khalid Zaman & Haroon ur Rashid Khan & Abdul Wahab Pathath & Muhamad Amar Mahmad & Kamil Sertoglu, 2023. "Riding the Waves of Fluctuating Oil Prices: Decoding the Impact on Economic Growth," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 34-50, March.

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