Effect of Inflation on Economic Growth of Ethiopia

Tizita Gebeyehu Yismaw

doi:doi:10.11648/j.jim.20190802.13

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Effect of Inflation on Economic Growth of Ethiopia

Tizita Gebeyehu Yismaw

Published in Journal of Investment and Management (Volume 8, Issue 2)

Received: 22 March 2019 Accepted: 26 April 2019 Published: 15 May 2019

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Abstract

The interaction between growth and inflation is one of the macroeconomic problems. Determining the effect of inflation on the economic growth of one country must be considered as a prior issue to build up a healthy economy. The main objective of this paper is to test that, whether inflation is an indicator or obstacle for economic growth of Ethiopia. Pair wise Granger causality test has been made to verify the objective of the paper and the pairwise Granger causality test result suggesting the existence of strong and significant correlation between variables pairwise. The test reveals a uni- directional causation between, real GDP and export (EX) and between real GDP and inflation and real GDP and investment. The causation runs from real GDP to inflation, real GDP to export and real GDP and investment respectively. In addition, taking the main objective which hypothesizes to proof whether inflation cause economic growth or the reverse holds true, the granger causality test pertains a uni- directional causation which runs from economic growth to inflation. Accordingly one can conclude that economic growth can cause for inflation but inflation doesn’t cause economic growth during the study period in Ethiopia (1975-2016). Based up on the finding it is evident that balancing economic growth target in line with a monetary policy target may have a vital role to boost economic growth and control the level of inflation.

Published in	Journal of Investment and Management (Volume 8, Issue 2)
DOI	10.11648/j.jim.20190802.13
Page(s)	48-52
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Inflation, Economic Growth, Ethiopia, Johansen Co-Integration and Granger Causality

References

[1]	Emrta, A. (2013), Inflation and Economic Growth: An Estimate of the Threshold Level of Inflation for Ethiopia, Addis Ababa, Ethiopia: Ethiopian Economic Association (EEA).
[2]	Tamerat Kahssay (2017), Determinants of inflation in Ethiopia, journal of economics and sustainable development, vol 8, no. 19.
[3]	Annual Report: National Bank of Ethiopia Annual Report, Fiscal year 2013-2016.
[4]	Ashagrie Demile (2015), Inflation - Growth Nexus in Ethiopia: Evidence from Threshold Auto Regressive Model, Journal of economics and international finance, Vol 5(6), pp. 248-257.
[5]	MOFED (2015), Macro economic developments in Ethiopia, Addis Abeba, MOFED, annual report.
[6]	Abis Getachew Makuria (2013), the relationship between inflation and economic growth in Ethiopia, the University of Sydney, Australia.
[7]	Tzita Aberea (2010), Adverse effect of inflation rate in Ethiopia, unpublished MSc thesis (economic policy analysis), Addis Ababa university, Addis Ababa.
[8]	Michael M. (2008), Determinants of Recent Inflation in Ethiopia. Munich Personal RePEc Archive.
[9]	Verbeek, Marno (2004), A Guide to Modern Econometrics, 4^th ed. John Wiley & Sons Ltd, Erasmus University Rotterdam.
[10]	Tesema Aberu, Tewodros Ayalew and Tewodros Tefera (2010), Determinants of inflation rate in Ethiopia, unpublished MSc thesis (economic policy analysis), Addis Ababa university, Addis Ababa.
[11]	The Federal Democratic Republic of Ethiopia, Growth and Transformation Plan (GTP1) 2010/11-2014/15, September 2010, Addis Ababa.
[12]	Teshome A. (2011), Sources of Inflation and Economic Growth in Ethiopia, Ethiopia Civil Service University.
[13]	Gujarati D. N, ( 2004), Basic Econometrics, 4^th ed. The McGraw-Hill, Inc., New York.
[14]	Hodge (2005), Inflation and growth in South Africa, Journal of Socio Economics issues, Vol. 38, 764-778.
[15]	Fekadu Dereje (2011), Relationship between Inflation and Economic Growth in Ethiopia: Empirical Analysis, Journal of Economics and Sustainable Development Vol. 3 (12).
[16]	Barro (1996), determinants of economic growth: a cross-country empirical study, national bureau of economic research Cambridge, MA 02138.
[17]	Getachew W. (1996): Economic Analysis of inflation in the short run and long run perspectives (the case of Ethiopia), Vienna University of Natural Resource and Life sciences.

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Tizita Gebeyehu Yismaw. (2019). Effect of Inflation on Economic Growth of Ethiopia. Journal of Investment and Management, 8(2), 48-52. https://doi.org/10.11648/j.jim.20190802.13

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ACS Style

Tizita Gebeyehu Yismaw. Effect of Inflation on Economic Growth of Ethiopia. J. Invest. Manag. 2019, 8(2), 48-52. doi: 10.11648/j.jim.20190802.13

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AMA Style

Tizita Gebeyehu Yismaw. Effect of Inflation on Economic Growth of Ethiopia. J Invest Manag. 2019;8(2):48-52. doi: 10.11648/j.jim.20190802.13

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@article{10.11648/j.jim.20190802.13,
  author = {Tizita Gebeyehu Yismaw},
  title = {Effect of Inflation on Economic Growth of Ethiopia},
  journal = {Journal of Investment and Management},
  volume = {8},
  number = {2},
  pages = {48-52},
  doi = {10.11648/j.jim.20190802.13},
  url = {https://doi.org/10.11648/j.jim.20190802.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20190802.13},
  abstract = {The interaction between growth and inflation is one of the macroeconomic problems. Determining the effect of inflation on the economic growth of one country must be considered as a prior issue to build up a healthy economy. The main objective of this paper is to test that, whether inflation is an indicator or obstacle for economic growth of Ethiopia. Pair wise Granger causality test has been made to verify the objective of the paper and the pairwise Granger causality test result suggesting the existence of strong and significant correlation between variables pairwise. The test reveals a uni- directional causation between, real GDP and export (EX) and between real GDP and inflation and real GDP and investment. The causation runs from real GDP to inflation, real GDP to export and real GDP and investment respectively. In addition, taking the main objective which hypothesizes to proof whether inflation cause economic growth or the reverse holds true, the granger causality test pertains a uni- directional causation which runs from economic growth to inflation. Accordingly one can conclude that economic growth can cause for inflation but inflation doesn’t cause economic growth during the study period in Ethiopia (1975-2016). Based up on the finding it is evident that balancing economic growth target in line with a monetary policy target may have a vital role to boost economic growth and control the level of inflation.},
 year = {2019}
}

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TY  - JOUR
T1  - Effect of Inflation on Economic Growth of Ethiopia
AU  - Tizita Gebeyehu Yismaw
Y1  - 2019/05/15
PY  - 2019
N1  - https://doi.org/10.11648/j.jim.20190802.13
DO  - 10.11648/j.jim.20190802.13
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 48
EP  - 52
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20190802.13
AB  - The interaction between growth and inflation is one of the macroeconomic problems. Determining the effect of inflation on the economic growth of one country must be considered as a prior issue to build up a healthy economy. The main objective of this paper is to test that, whether inflation is an indicator or obstacle for economic growth of Ethiopia. Pair wise Granger causality test has been made to verify the objective of the paper and the pairwise Granger causality test result suggesting the existence of strong and significant correlation between variables pairwise. The test reveals a uni- directional causation between, real GDP and export (EX) and between real GDP and inflation and real GDP and investment. The causation runs from real GDP to inflation, real GDP to export and real GDP and investment respectively. In addition, taking the main objective which hypothesizes to proof whether inflation cause economic growth or the reverse holds true, the granger causality test pertains a uni- directional causation which runs from economic growth to inflation. Accordingly one can conclude that economic growth can cause for inflation but inflation doesn’t cause economic growth during the study period in Ethiopia (1975-2016). Based up on the finding it is evident that balancing economic growth target in line with a monetary policy target may have a vital role to boost economic growth and control the level of inflation.
VL  - 8
IS  - 2
ER  -

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Author Information

Tizita Gebeyehu Yismaw

Department of Economics, Debre Brehan University, Debre Brehan, Ethiopia

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APA Style

Tizita Gebeyehu Yismaw. (2019). Effect of Inflation on Economic Growth of Ethiopia. Journal of Investment and Management, 8(2), 48-52. https://doi.org/10.11648/j.jim.20190802.13

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ACS Style

Tizita Gebeyehu Yismaw. Effect of Inflation on Economic Growth of Ethiopia. J. Invest. Manag. 2019, 8(2), 48-52. doi: 10.11648/j.jim.20190802.13

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AMA Style

Tizita Gebeyehu Yismaw. Effect of Inflation on Economic Growth of Ethiopia. J Invest Manag. 2019;8(2):48-52. doi: 10.11648/j.jim.20190802.13

Copy | Download

@article{10.11648/j.jim.20190802.13,
  author = {Tizita Gebeyehu Yismaw},
  title = {Effect of Inflation on Economic Growth of Ethiopia},
  journal = {Journal of Investment and Management},
  volume = {8},
  number = {2},
  pages = {48-52},
  doi = {10.11648/j.jim.20190802.13},
  url = {https://doi.org/10.11648/j.jim.20190802.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20190802.13},
  abstract = {The interaction between growth and inflation is one of the macroeconomic problems. Determining the effect of inflation on the economic growth of one country must be considered as a prior issue to build up a healthy economy. The main objective of this paper is to test that, whether inflation is an indicator or obstacle for economic growth of Ethiopia. Pair wise Granger causality test has been made to verify the objective of the paper and the pairwise Granger causality test result suggesting the existence of strong and significant correlation between variables pairwise. The test reveals a uni- directional causation between, real GDP and export (EX) and between real GDP and inflation and real GDP and investment. The causation runs from real GDP to inflation, real GDP to export and real GDP and investment respectively. In addition, taking the main objective which hypothesizes to proof whether inflation cause economic growth or the reverse holds true, the granger causality test pertains a uni- directional causation which runs from economic growth to inflation. Accordingly one can conclude that economic growth can cause for inflation but inflation doesn’t cause economic growth during the study period in Ethiopia (1975-2016). Based up on the finding it is evident that balancing economic growth target in line with a monetary policy target may have a vital role to boost economic growth and control the level of inflation.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - Effect of Inflation on Economic Growth of Ethiopia
AU  - Tizita Gebeyehu Yismaw
Y1  - 2019/05/15
PY  - 2019
N1  - https://doi.org/10.11648/j.jim.20190802.13
DO  - 10.11648/j.jim.20190802.13
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 48
EP  - 52
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20190802.13
AB  - The interaction between growth and inflation is one of the macroeconomic problems. Determining the effect of inflation on the economic growth of one country must be considered as a prior issue to build up a healthy economy. The main objective of this paper is to test that, whether inflation is an indicator or obstacle for economic growth of Ethiopia. Pair wise Granger causality test has been made to verify the objective of the paper and the pairwise Granger causality test result suggesting the existence of strong and significant correlation between variables pairwise. The test reveals a uni- directional causation between, real GDP and export (EX) and between real GDP and inflation and real GDP and investment. The causation runs from real GDP to inflation, real GDP to export and real GDP and investment respectively. In addition, taking the main objective which hypothesizes to proof whether inflation cause economic growth or the reverse holds true, the granger causality test pertains a uni- directional causation which runs from economic growth to inflation. Accordingly one can conclude that economic growth can cause for inflation but inflation doesn’t cause economic growth during the study period in Ethiopia (1975-2016). Based up on the finding it is evident that balancing economic growth target in line with a monetary policy target may have a vital role to boost economic growth and control the level of inflation.
VL  - 8
IS  - 2
ER  -

Copy | Download