30 Years of Macroeconomic Effects in Zambia-VECM, ARDL & IRF Approaches

Abstract

Purpose: This study examines the impact of selected time series macroeconomic variables on Zambia’s economic progress for thirty (30) years (1992 to 2022) Methodology: The study employs the autoregressive distributed lag (ARDL), vector error correction models (VECMs) and the impulse response functions (IRFs) approaches. Findings: The VECM regression estimates indicate that in the long-run, ceteris paribus, a 1% increase in inflation and population growth rates cause a significant positive impact on economic progress of 0.36% and 0.68 % respectively whereas the total public debt stock causes decrease in economic growth of 0.45%. The ARDL long-run regression estimates indicate that ceteris paribus, a 1% increase in inflation and public debt significantly reduces real GDP by 0.2% and 0.03%, respectively, but a 1% increase in population growth rate increases real GDP by 23.11%. The IRF estimates show that a negative shock to the real GDP causes a mildly negative effect on the inflation rate, causes a significant positive increase in the population growth rate, which dissipates after 9.5 years and causes a significant positive increase in public debt, which dissipates after 10 years. Unique Contribution to Theory, Policy and Practice: Therefore, the study recommends that the Zambian government should prioritize repayment of the outstanding public debt by bringing down the debt-to-GDP ratio to sustainable levels, adhering to prudent public financial management and continuing to grow the domestic revenue base. The policies to promote population growth should be pursued cautiously because rapid population growth rates could erode the future economic growth prospects of Zambia.