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Inflation and economic growth: a multi-country empirical analysis


  • Satya Paul
  • Colm Kearney
  • Kabir Chowdhury


The world eocnomy is currently adjusting to a low inflation regime which has implicastions for the cross-country distribution of world growth opportunities. In contrast to previous related work which assumes unidirectional causality, this paper uses the Granger methodology to examine both the direction and pattern of causality between inflation and economic growth in 70 countries using annual data over the period 1960-89. Among the conclusions are that first, the relationship between inflation and growth is non-uniform across countries: 40% of countries studied reveal no causality, one-third exhibit unidirectional causality and about one-fifth of countries show bidirectional causality, second, a vast majority of countries which show either uni- or bi-directional causality beong to the industrial group, and third, the low world inflation regime will on balance redistribute real growth opportunities benefit away from the developing countries towards the industrialized countries.

Suggested Citation

  • Satya Paul & Colm Kearney & Kabir Chowdhury, 1997. "Inflation and economic growth: a multi-country empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1387-1401.
  • Handle: RePEc:taf:applec:v:29:y:1997:i:10:p:1387-1401
    DOI: 10.1080/00036849700000029

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    References listed on IDEAS

    1. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-1310, November.
    2. Grimes, Arthur, 1991. "The effects of inflation on growth: some international evidence," MPRA Paper 68526, University Library of Munich, Germany.
    3. Kang, Heejoon, 1985. "The Effects of Detrending in Granger Causality Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 344-349, October.
    4. McCallum, Bennett T, 1977. "Price-Level Stickiness and the Feasibility of Monetary Stabilization Policy with Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 627-634, June.
    5. David E. Laidler, 1988. "Taking Money Seriously," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 687-713, November.
    6. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
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    Cited by:

    1. Saaed, A.A.J., 2007. "Inflation and Economic Growth in Kuwait: 1985-2005. Evidence from Co-Integration and Error Correction Model," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    2. Alexandru Minea & Patrick Villieu & Christophe Rault, 2008. "Further theoretical and empirical evidence on money to growth relation," Economics Bulletin, AccessEcon, vol. 5(21), pages 1-7.
    3. Girijasankar Mallik & Anis Chowdhury, 2011. "Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia," Journal of Economic Studies, Emerald Group Publishing, vol. 38(4), pages 414-429, September.
    4. repec:spr:soinre:v:133:y:2017:i:2:d:10.1007_s11205-016-1389-z is not listed on IDEAS
    5. Le Viet Trung & Nguyen Thi Thuy Vinh, 2011. "The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam," Discussion Paper Series DP2011-09, Research Institute for Economics & Business Administration, Kobe University.
    6. Ahmad Jafari Samimi & Sedigheh Gholizadeh Kenari, 2015. "Inflation and Economic Growth in Developing Countries: New Evidence," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(2), pages 51-56, Fabruary.
    7. Asset Izatov, 2015. "The Role of Oil Prices, the Real Effective Exchange Rate, and Inflation in Economic Activity of Russia: An Empirical Investigation," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 1(3), pages 48-70.
    8. Kevin S. Nell, 2000. "Is Low Inflation a Precondition for Faster Growth? The Case of South Africa," Studies in Economics 0011, School of Economics, University of Kent.
    9. Athanasios Koulakiotis & Katerina Lyroudi & Nicholas Papasyriopoulos, 2012. "Inflation, GDP and Causality for European Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(1), pages 53-62, February.
    10. M., Azali & Wong, K. S. Kelly & Lee, C. & Shafinaz, Ahmad Nazar, 2007. "The Asean-5 Future Currency: Maastricht Criteria," MPRA Paper 10272, University Library of Munich, Germany.
    11. Izatov, Asset, 2015. "The Role of Oil Prices, Real Effective Exchange Rate and Inflation in Economic Activity of Russia: An Empirical Investigation," MPRA Paper 70735, University Library of Munich, Germany, revised 2015.
    12. Said Zamin Shah & Said Zamin Shah & Ahmad Zubaidi Baharumshah & Muzafar Shah Habibullah & Law Siong Hook, 2017. "The Asymmetric Effects of Real and Nominal Uncertainty on Inflation and Output Growth: Empirical Evidence from Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 377-386.
    13. repec:ebl:ecbull:v:5:y:2008:i:21:p:1-7 is not listed on IDEAS
    14. repec:kap:iaecre:v:18:y:2012:i:1:p:53-62 is not listed on IDEAS
    15. Waseem Khadim & Saddam Ilyas & Bilal Mehmood, 2016. "Of Inflation and Growth Nexus in BRIMC Economies," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(1), pages 32-45, January.
    16. Dholakia, Ravindra H., 2014. "Sacrifice Ratio and Cost of Inflation for the Indian Economy," IIMA Working Papers WP2014-02-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    17. Rufin-Willy Mantsie, 2012. "In Search of Inflation Rate Compatible with Growth Target in CEMAC Countries," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(4), pages 329-350.

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