Inflation dynamics and economic growth in Tanzania: A multivariate time series model

Abstract

This study examines the short-run and long-run causal relationship between inflation, investment and economic growth in Tanzania. In the main, the study incorporates investment in a bivariate setting between inflation and economic growth - hence, creating a trivariate model. The study attempts to answer one critical question: Does inflation have any significant influence on economic growth and investment in Tanzania? Using the ARDL-bounds testing approach, the study finds a unidirectional causal flow from inflation to economic growth - without any feedback response. The study also finds that investment in Tanzania unambiguously causes economic growth. The results apply irrespective of whether the causality is estimated in the long run or in the short run. © 2012 The Clute Institute.