Inflation, investment and economic growth in selected Sub-Saharan Africa Countries (1986- 2012)
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Date
2016
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Economics,Obafemi Awolowo University
Abstract
The study determined trends of inflation, investment and economic growth in sub-Saharan Africa and analysed the dynamic interaction amongst investment, inflation rate and economic growth in sub-Saharan Africa region between 1986 and 2012. It also examined the direction of causality in the interrelationship that exist among these variables and established threshold effect of inflation on the relationship between investment and economic growth in sub-Saharan Africa region. These were with the view to determining the relationship amongst investment, inflation and economic growth in Sub-Saharan Africa region for the period 1986 to 2012.
Annual secondary data covering the periods between 1986 and 2012 were employed for the study. Twenty four countries selected from the four main regional economic communities in Sub-Saharan Africa Countries (SSA) such as: Economic Communities of West African States (ECOWAS); Economic Community of Central African States (ECCAS); East African Community (EAC) and the Southern African Development Community (SADC) were used for the study. Data on gross domestic product, inflation, population export, import, money supply and gross fixed capital formation were sourced from the World Development Indicators (WDI) of the World Bank. Tables and graphs were used for the trend analysis. Panel vector error correction model (PVECM) and multivariate causality tests were used to determine the dynamic interrelationship and causal direction of inflation, investment and economic growth in the region. Threshold auto-regression was used to determine inflationary threshold effect in relationship between investment and economic growth for the region.
The results showed an upward trend of economic growth and investment as each respectively rose from 0.35 and -10.98 in 1986 to 3.77 and 6.99 percent in 2012, while inflation rate increased from 7.6 percent in 1986 to 27.45 percent 1994 before oscillating around 6.45 percent all through 2010 to 2012. The result also showed negative inflation-economic growth nexus; negative inflation-investment nexus and positive investment-economic growth nexus for the region. It also showed bidirectional causality between inflation and growth (F =11.36, p < 0.05), while unidirectional causality exists between investment and economic growth as causality runs from investment to economic growth (F=2.83, p < 0.05). The relationship between investment and inflation was also unidirectional as causality only runs from inflation to investment (F = 19.38, p < 0.05). The threshold regression result suggested existence of one inflation threshold value of 4.64 percent. Beyond this threshold value, inflation rate exerted a significant negative effect on economic growth (t = -2.09, p < 0.05). The result also showed existence of lower positive influence of investment on economic growth at inflation rate beyond the threshold value.
The study concluded that inflation had negative effect on investment and economic growth, while investment produced positive effect on economic growth in sub-Saharan Africa region for the period 1986 to 2012.
Description
xvii,187p
Keywords
Economic growth, Inflation, Investment, Inflation rate
Citation
Ojo.S.I (2016). Inflation, investment and economic growth in selected Sub-Saharan Africa Countries (1986- 2012). Obafemi Awolowo University