Inflation and Its Effects on Economic Growth – Evidence from 45 Countries

Inflation is a pressing issue that is commonly affiliated with numbers of social and economic consequences. It is gaining increasingly higher attention, especially at the world scale, after the COVID-19 pandemic. The study aims to analyse the current inflation situation all over the world and re-examine its relationship with economic growth, using the sample of 45 countries for the period 2010 - 2021. To achieve the results, Ordinary least squares (OLS), fixed effects and random effects models are applied to overhaul its impacts on economic growth and how those effects differ across two groups of countries including developed countries and developing countries. We provide evidence that the inflation rate not only has a negative but also a positive impact on the economic growth rate and the results are robust in all groups of countries. Research purpose: The goal of the study is to investigate the current state of global inflation and its relationship to economic development using a sample of 45 nations for the years 2010 through 2021. Research motivation: The motivation of this research paper is to fill the gap with previous studies, providing an overview and more objective results for the inflation situation as well as its impact on economic growth. Research design, approach, and method: To assess the most accurate figures, we applied the Ordinary least squares (OLS), fixed effects and random effects models to analyse the inflation’s impact on economic growth. Main findings: There was a negative impact of inflation on the economic growth in both 45 countries and each group of countries in the period from 2010 to 2021. In contrast, inflation remained a positive relationship with economic growth during the COVID-19 pandemic period from 2019 to 2021. Practical/managerial implications: The research paper provides empirical evidence in 45 countries around the world, from different regions rather than being limited like most studies and we divide into 2 main groups of countries for a more comprehensive view between 2010 and 2021.