Ahortor, Christian R.K. and Adenutsi, Deodat E. (2009): Inflation, capital accumulation and economic growth in import-dependent developing countries.
Download (430kB) | Preview
The analytical framework of this paper makes use of a hexa-variate panel vector autoregressive (PVAR) approach on balanced annual panel data from 30 sampled import-dependent developing economies for the period, 1970-2006. The variables included in the empirical PVAR model are inflation, capital accumulation, output growth rate, interest rate, exchange rate, terms of trade and import dependence. Our empirical results suggest that the long-run static impact of capital accumulation and economic growth on inflation is negative. Besides, inflation and economic growth had dampening effects on capital accumulation contemporaneously in the long run. The short-run dynamics also indicate that while it is possible for any previous disequilibrium in inflation, capital accumulation and economic growth relationship to be corrected overtime, the speed of adjustment to equilibrium is so sluggish that it will take a very long time for this to manifest. Exchange rate and money supply produce short-run dynamics that drive price levels in import-dependent developing economies. It is, therefore, recommended that in order to reduce inflation in import-dependent economies, demand management policies should be used in the short run, while macroeconomic policies should be directed at enhancing economic growth and capital accumulation in the long run.
|Item Type:||MPRA Paper|
|Original Title:||Inflation, capital accumulation and economic growth in import-dependent developing countries|
|Keywords:||Inflation; Capital Accumulation; Economic Growth; Panel VAR; Import-Dependent Developing Economies|
|Subjects:||N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
|Depositing User:||Deodat E. Adenutsi|
|Date Deposited:||28. Mar 2011 10:15|
|Last Modified:||15. Mar 2015 02:24|
Ahortor, Christian R.K. and Deodat E. Adenutsi (2009), “The Impact of Remittances on Economic Growth in Small-Open Developing Economies”, Journal of Applied Sciences, 9(18): 3275-3286.
Arrow, Kenneth J. (1962), “The Economic Implications of Learning by Doing,” Review of Economic Studies, 29: 155-173.
Asteriou, Dimitrios (2006), Applied Econometrics: A Modern Approach using Eviews and Microfit, Hamsphire: Palgrave Macmillan.
Barro, Robert J. (1991), “Economic Growth in a Cross Section of Countries”, Quarterly Journal of Economics, 106(2): 401-443.
Barro, Robert J. (1995), “Inflation and Economic Growth”, NBER Working Papers 5326.
Breitung, Joerg (2000), “The Local Power of Some Unit Root Tests for Panel Data,” in B. Baltagi (ed.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Advances in Econometrics, 15: 161-178.
Burdekin, Richard C.K., Arthur T. Denzau, Manfred W. Keil, Thitithep Sitthiyot, and Thomas D. Willet (2000) “When Does Inflation Hurt Economic Growth? Different Non-Linearities for Different Economies”, Working Papers in Economics, Claremont Colleges.
Byrne, Joseph P. and E. Philip Davis (2004), “Permanent and Temporary Inflation Uncertainty and Investment in the United States”, Economic Letters, 85(2): 271-277.
Cardoso, Eliana A. and Albert Fishlow (1989), “Latin America Economic Development: 1950-1980,” NBER Working Paper 3161.
Chan, Kung-Sig and Ruey S. Tsay (1998), “limiting Properties of the Least Squares Estimator of a Continuous Threshold Autoregressive Model,” Biometrica, 85(2): 413-426.
Chirinko, Robert S. (1996), “Investment under Uncertainty: A Review Essay,” Journal of Economics Dynamics and Control, 20: 1801-1808.
De Gregorio, José (1992a), “Economic Growth in Latin America,” Journal of Development Economics, 39(1): 59-84.
De Gregorio, José (1992b), “The Effects of Inflation on Economic Growth: Lessons from Latin America,” European Economic Review, 36(2-3): 417-425.
De Gregorio, José (1993), “Inflation, Taxation, and Long-Run Growth,” Journal of Monetary Economics, 31: 271-298.
Dixit, Avinash K. and Robert S. Pindyck (1994), Investment under Uncertainty, Princeton: Princeton University Press.
Domar, Evsey (1946), “Capital Expansion, Rate of Growth, and Employment,” Econometrica, 14: 137-147.
Enders, Walter (1995), Applied Econometric Time Series, New York: John Wiley.
Faria, João R. and Galrão Carneiro (2001), “Does High Inflation Affect Growth in the Long- and Short-Run?” Journal of Applied Economics, (0):89-105.
Feldstein, Martin (1982), “Inflation, Tax Rules, and Investment: Some Econometric Evidence”, Econometrica, 50(4): 825-862.
Fischer, Stanley (1983), “Inflation and Growth,” NBER Working Paper 1235.
Fischer, Stanley (1991), “Growth, Macroeconomics and Development,” NBER Macroeconomics Annual, 6: 329-364.
Fischer, Stanley (1993), “The Role of Macroeconomic Factors in Growth,” Journal of Monetary Economics, 32(10): 485-512.
Grier, Kevin B. and Gordon Tullock (1989), “An Empirical Analysis of Cross-National Economic Growth,” Journal of Monetary Economics, 24(2): 259-276.
Grimes, Arthur (1991), “The Effects of Inflation on Growth: Some International Evidence,” Weltwirtschaftliches Archiv, 127: 631-644.
Gylfason, Thorvaldur (1991), “Inflation, Growth and External Debt: A View of the Landscape,” The World Economy, 14: 279-298.
Hansen, Bruce (1999), “Threshold Effects in Non-Dynamic Panels: Estimation, Testing, and Inference,” Journal of Econometrics, 81: 594-607.
Hansen, Bruce (2000), “Sample Splitting and Threshold Estimation,” Econometrica, 68: 575-603.
Harris, Richard I.D. (1995), Using Cointegration Analysis in Econometric Modelling, London: Prentice Hall, Harvester Wheatsheaf.
Harrod, Roy (1939), “An Essay in Dynamic Theory,” Economic Journal, 49: 14-33.
Harrod, Roy (1948), Towards a Dynamic Economics, London: Macmillan.
Hellerstein, Rebecca (1997), “The Impact of Inflation”, Regional Review, Federal Reserve Bank of Boston, 7(1, Winter): 18-24.
Hoffmann, Mathias (2003), “Fixed versus Flexible Exchange Rates: A Panel-VAR Analysis”, A Research Work which is part of The Analysis of International Capital Markets: Understanding Europe’s Role in the Global Economy, funded by the European Commission under the Research Training Network Programme.
Im, Kyung So, M. Hashem Pesaran and Yongcheol Shin (2003), “Testing for Unit Roots in Heterogeneous Panels,” Journal of Econometrics, 115(1): 53-74.
Johansen, Sǿren (1988), “Statistical Analysis of Cointegrating Vectors,” Journal of Economic Dynamics and Control, 12(2/3): 231-254.
Khan, Mohsin S. and Abdelhak S. Senhadji (2001), “Threshold Effects in the Relationship between Inflation and Growth,” IMF Staff Papers 48(1).
Kireyev, Alexei (2000), “Comparative Macroeconomic Dynamics in the Arab World: A Panel VAR Approach”, IMF Working Paper WP/00/54.
Kormendi, Roger C. and Philip C. Meguire (1985), “Macroeconomic Determinants of Growth,” Journal of Monetary Economics, 16: 141-163.
Larsson, Rolf, Johan Lyhagen and Mickael Löthgren (2001), “Likelihood Based Cointegration Tests in Heterogeneous Panels,” Econometric Journal, 4: 109-142.
Levin, Andrew, Chien-Fu Lin and Chia-Shang J. Chu (2002), “Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties,” Journal of Econometrics, 108(1): 1-24.
Levine, Ross and David Renelt (1992), “A Sensitivity Analysis of Cross-Country Growth Regressions,” American Economic Review, 82: 942-963.
Levine, Ross and Sara Zervos (1992), “What have we Learned about Policy and Growth from Cross-Country Regressions?” American Economic Papers and Proceedings, 83: 426-430.
Lewis, Arthur (1955), The Theory of Economic Growth, London: Allen & Unwin.
Lioui, Abraham and Patrice Poncet (2008), “Monetary Non-Neutrality in the Sidrauski Model under Uncertainty,” Economic Letters, 100: 22-26.
Love, Inessa and Lea Zicchino (2006), “Financial Development and Dynamic Investment behaviour: Evidence from Panel VAR”, The Quarterly Review of Economics and Finance, 46: 190–210.
Lucas, Robert E. Jr. (1988), “On the Mechanics of Economic Development,” Journal of Monetary Economics, 22(1): 3-42.
Madsen, Jakob B. (2003), “Inflation and Investment”, Scottish Journal of Political Economy, 50(4): 375-397.
Malla, Suni (1997), “Inflation and Economic Growth: Evidence from a Growth Equation,” Mimeo. University of HawaiI at Mona: Department of Economics.
Mallik, Girijasankar and Anis Chowdhury (2001), “Inflation and Economic Growth: Evidence from Four South Asian Countries,” Asia-Pacific Development Journal, 8(1): 123-135.
McCoskey, Suzanne and Chihwa Kao (1998), “A Residual-Based Test for the Null Hypothesis of Cointegration in Panel Data,” Econometric Reviews, 17: 57-84.
Mukherjee, Chandan; Howard White and Marc Wuyts (2003), Econometrics and Data Analysis for Developing Countries, London: Routledge.
Pedroni, Peter (1997), “Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series with an Application to the PPP Hypothesis: New Results,” Working Paper, Indiana University.
Pedroni, Peter (1999), “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,” Oxford Bulletin of Economics and Statistics, Special Issue, 61 (November): 653-670.
Pedroni, Peter (2000), “Fully Modified OLS for Heterogeneous Cointegrated Panel,” Advances in Econometrics, 15: 93-130.
Pindyck, Robert S. and A. Solimano (1993), “Economic Instability and Aggregate Investment,” NBER Macroeconomic Annual.
Rapach, David (2003), “International Evidence on the Long-Run Impact of Inflation,” Journal of Money, Credit and Banking, 35(1): 23-48.
Rapach, David and Mark E. Wohar (2005), “Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon?” Journal of Money, Credit and Banking, 37(5): 887-906.
Romer, Paul M. (1986), “Increasing Returns and Long-Run Growth,” Journal of Political Economy, 94: 1002-1037.
Romer, Paul M. (1987), “Growth Based on Increasing Returns Due to Specialization,” American Economic Review, 77: 56-62.
Rostow, Walter W. (1960), The Stages of Economic Growth, Cambridge University Press.
Roubini, Nouriel and Xavier Sala-i-Martin (1992), “Financial Repression and Economic Growth,” Journal of Development Economics, 39(July): 5-30.
Servén, Luis and Andrés Solimano (1992), “Private Investment and Macroeconomic Adjustment: A Survey,” The World Bank Research Observer, 7(1): 95-114.
Solow, Robert M. (1956), “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, 70: 65-94.
Solow, Robert M. (1986), “What is a Nice Girl Like You Doing in a Place Like this? Macroeconomics After 50 Years,” Eastern Economic Journal, 12(3): 191-198.
Stanners, Walter (1993), “Is Inflation and Important Condition for High Growth?” Cambridge Journal of Economics, 17: 79-107.
Sweidan, Osama D. (2004), “Does Inflation Harm Economic Growth in Jordan? An Econometric Analysis for the Period 1970-2000,” International Journal of Applied Econometrics and Quantitative Studies, 1(2): 41-66.