Abstract
This paper examines the relationship between inflation and economic growth in Ghana. Using quarterly data from 1986Q1 to 2012Q4. The study employs Co- integration and error correction model. The study reveals that capital, government expenditure, labour force and money supply have a positive impact on GDP. In addition, inflation and interest rate has a decreasing impact on economic growth. The study recommends inflation targeting as best monetary policy. There is the need for government to increase expenditure in the area of infrastructure development and human capital to increase output. Keywords : Co – Integration, Inflation, ECM Model, Economic Growth, Ghana
Highlights
According to Barro (2013), most businesses and households perform poorly when inflation is high and unpredictable
Using the threshold calculated by Mireku (2012) and Frimpong and Oteng-Abayie (2010), this study aims to find the actual nexus between inflation and growth in the case of Ghana during the period 1986 to 2012 as this period marks the full implementation of economic reforms to date
In order to examine the link between inflation and economic growth, it is imperative to carry out unit root test and Co – integration test
Summary
According to Barro (2013), most businesses and households perform poorly when inflation is high and unpredictable. Empirical findings on the link between inflation and economic growth has been mixed. According to Khan and Eggoh (2014), the mixed result mostly found is due to lack of consensus in the fact that the inflation–growth relationship depends upon country-specific characteristics. This study provides presumption that inflation is a bad idea but this case is not decisive without supporting empirical findings. Shahbaz (2013) used data for the period 1971–2010 in Pakistan, using ARDL bounds testing approach to co-integration method and found there is a co-integration between inflation and economic growth. Shahbaz (2013) used data for the period 1971–2010 in Pakistan, using ARDL bounds testing approach to co-integration method and found there is a co-integration between inflation and economic growth. Malla (1997) used a small sample of eleven OECD countries in a pooled time series and cross-section fashion to Ferdinand Ahiakpor & Isidore Adagwine Akapare Short-Run and Long-Run Inflation and Economic Growth Nexus in Ghana examine the relationship between inflation and growth and found that negative effects of inflation on economic growth outweigh its positive effects
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