Abstract
The impact of macroeconomic variables on the economic growth of Bangladesh is investigated in this study by considering GDP growth (GDP) as the representative of economic growth. In addition, inflation (INF), real interest rate (INT), exchange rate (EXR), and household consumption expenditures growth (HCE) are selected to represent the macroeconomic variables for the period of 1987-2015. Correlation and multiple regression analysis are conducted to evaluate the data. In correlation analysis, it is found that GDP has positive correlation with all the variables except INT. In regression analysis, GDP is selected as the dependent variable and INF, INT, EXR, and HCE are considered as the independent variables. It is observed that the independent variables explained 75.60% of the variability of GDP and the relationship is also found statistically significant at 95% confidence level. Therefore, this study has concluded that macroeconomic variables have significant effect on the economic growth of Bangladesh.
Highlights
This study aims to harness this opportunity by studying the impact of macroeconomic variables on economic growth in Bangladesh
In pursuit of exploring the impact of macroeconomic variables on economic growth of Bangladesh, the Gross Domestic Product (GDP) growth, inflation, real interest rate, exchange rate, and household consumption expenditures growth data for 29 years are analyzed by this study and it has found the existence of significant impact of macroeconomic variables on economic growth
Inflation has shown a negative coefficient with GDP growth which aligns with the findings of Ayyoub, Chaudhry and Farooq [7], Faria and Carneiro [8], Mamo [2], Inyiama [11], and Rahman [15]
Summary
Inflation raises the price level of commodities, services and other factors creates economic difficulties for a country. It causes the deterioration in purchasing power of money, value of money decreases simultaneously. This price level increase and decline in value of money triggered by inflation affect the growth of an economy. Higher inflation causes high interest rate and as interest rate, generally, drives opposite to GDP, the increase in interest rate leads to decrease in economic growth of a country and vice versa [5]
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