Analysis of the Relationship between Inflation, Economic growth and Agricultural growth in Swaziland from 1980-2013

Abstract

While there is an on-going debate on the nexus between economic growth and inflation, with some authors arguing a positive relationship and others arguing a negative relationship, policymakers are faced with the need to balance economic growth with low inflation. Although monetary policies have been undertaken to curb inflation in Swaziland, its economic growth remains slow. This study investigated the relationship between inflation, agricultural growth and economic growth in Swaziland for the period 1980 to 2013. The existence of long-run relationship and causality were tested. The study also determined the inflation threshold in Swaziland. Using the Autoregressive Distributed Lag (ADRL) model, a long-run relationship between these variables was found to exist. Granger causality results show that, in 1980-2013, there was uni-directional causality in Swaziland that flows from economic growth to inflation, no causality was detected between economic growth and agricultural growth, and between inflation and agricultural growth. Using the non-linear model, Swaziland’s inflation threshold was estimated at 12.56% with respect to economic growth and 10.36% with respect to agricultural growth. The elasticities from the long-run and short-run regressions showed that inflation has a negative impact of about 2% in the long-run on the economy and  impacts positively by about 0.05% in the short-run. In the short-run, the agricultural growth has a positive relationship with the economic growth in Swaziland, with an influence of 15% on economic growth.Based on these findings it is recommended that the Government promote the agricultural sector and that the monetary authorities in Swaziland Government pay more attention to the inflation trend and pursue policies that will ensure single digit inflation.

Keywords: Agricultural growth, ARDL, GDP, economic growth, inflation, threshold