An Econometric Assessment of the Impact of Inflation on Economic Growth: A Case Study of Zimbabwe Economy

Abstract

This study sought to determine the impact of inflation on Economic growth in Zimbabwe. The time series yearly data for Inflation and Economic Growth (GDP) from 1990 to 2017 were used for the study. Ordinary Least Squares (OLS) was used to determine the impact of inflation on Economic growth. Some Stationarity and Cointegration tests were carried out. Data became stationarity after first and second differencing using Augmented Dickey Fuller Test. There was also evidence of cointegration between the two variables using the Johansen Cointegration Test. The results of the study established no relationship between Inflation and Gross Domestic Product in Zimbabwe. These results have important policy implications, implying that controlling inflation is a necessary but not a precondition for promoting economic growth in Zimbabwe. Thus, the Zimbabwean government should focus on maintaining inflation at a low rate (single digit). In this regard the study concluded that all factors which cause an increase in the general price levels such as energy (petrol, diesel, gasoline, paraffin), exchange rates volatility, increase in money supply, poor agricultural production and so forth, should be kept on check, with the appropriate policies so as to foster economic growth.