Inflation and its Impact on Economic Growth: Evidence from Six South Asian Countries

Abstract

This study investigated the impact of inflation on economic growth and established the existence of inflation growth relationship in the context of South Asian countries. In order to examine the impact of inflation on economic growth, the study has used the time series data for the period 1980-2012. The study found that there is high positive correlation exist between inflation and economic growth for all the countries. The cointegration result suggest that there is long run relationship exist for Malaysia. However, the rest of the countries have no long run relationship between inflation and economic growth. In order to know the short run dynamics and direction of causality the study used Error Correction and Granger causality test. The study also employed unidirectional VAR analysis to know the short run dynamics between inflation and economic growth.

JEL Classification: E₀₀ and E₃₉

Keywords: Inflation, Economic Growth, South Asia, Granger Causality, Cointegration