An Econometric Assessment of the Impact of Inflation on Economic Growth: A Case Study of Zimbabwe Economy

Shame Mukoka

doi:10.11648/j.eco.20180701.13

Abstract

This study sought to determine the impact of inflation on Economic growth in Zimbabwe. The time series yearly data for Inflation and Economic Growth (GDP) from 1990 to 2017 were used for the study. Ordinary Least Squares (OLS) was used to determine the impact of inflation on Economic growth. Some Stationarity and Cointegration tests were carried out. Data became stationarity after first and second differencing using Augmented Dickey Fuller Test. There was also evidence of cointegration between the two variables using the Johansen Cointegration Test. The results of the study established no relationship between Inflation and Gross Domestic Product in Zimbabwe. These results have important policy implications, implying that controlling inflation is a necessary but not a pre-condition for promoting economic growth in Zimbabwe. Thus, the Zimbabwean government should focus on maintaining inflation at a low rate (single digit). In this regard the study concluded that all factors which cause an increase in the general price levels such as energy (petrol, diesel, gasoline, paraffin), exchange rates volatility, increase in money supply, poor agricultural production and so forth, should be kept on check, with the appropriate policies so as to foster economic growth.

Highlights

Attaining sustainable economic growth, coupled with price stability continues to be the central objective of macroeconomic policies for most countries in the world today.for the achievement of the targets of economic and social development, the government of Zimbabwe has to face a lot of challenges
Inflation is defined as the increase in the level of prices and economic growth, usually referred to as the gross domestic product (GDP), measuring the market values of a country’s final goods in a specified period, with economic growth being defined as the total output of goods and service of a country [1]
The results revealed that inflation possessed a positive impact on economic growth through encouraging productivity and output level and on evolution of total factor productivity

Summary

Introduction

Attaining sustainable economic growth, coupled with price stability continues to be the central objective of macroeconomic policies for most countries in the world today.for the achievement of the targets of economic and social development, the government of Zimbabwe has to face a lot of challenges. Inflation, which is often perceived by many economists as enemy of society, due to its field of activity of increasing pricing of goods and services is one of the macro-economic indicators affecting the country. This paper examines empirically the relationship between inflation and economic growth (GDP) in Zimbabwe. The subject that has preoccupied the government of Zimbabwe is the economic growth and inflation rate reduction. Inflation is defined as the increase in the level of prices and economic growth, usually referred to as the gross domestic product (GDP), measuring the market values of a country’s final goods in a specified period, with economic growth being defined as the total output of goods and service of a country [1]. An increase in inflation means that prices would have beenrisen.

Objectives

Methods

Findings

Discussion

Conclusion