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The Relationship Between Inflation and Economic Growth: A Further Evidence

Received: 6 September 2016     Accepted: 18 September 2016     Published: 9 October 2016
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Abstract

This paper focuses on exploring the relationship between inflation and economic growth in Saudi Arabia. The real growth of non-oil measure is used as a dependent variable, whereas wholesale price is implemented as a proxy for inflation. This study covers the period of 1985-2015. The short and long-run relationships are estimated using co-integration techniques. The results support the existence of positive effects of inflation over economic growth. The threshold level of inflation for non-oil GDP is around a 10 percent. In addition, the long-run causality is running from inflation to real growth of non-oil GDP. The impulse responses test points out that future responsiveness of growth due to impulse of inflation is negative and significant after a year and a half. Whereas, the inflation responsiveness due to a shock in growth is effective positively after three years and a half in the future.

Published in Journal of World Economic Research (Volume 5, Issue 5)
DOI 10.11648/j.jwer.20160505.13
Page(s) 65-71
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), 2016. Published by Science Publishing Group

Keywords

Non-oil GDP, Saudi Arabia, Co-integration Analysis, Causality, Inflation

References
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[2] Barro, R. (1995). Inflation and Economic Growth. NBER Working Paper, 1995.
[3] Birma, A. (2011). Some Empirical Aspects Regarding the Relationship between Inflation and Economic Growth in Romania: The Speed Limit Effect. European Journal of Interdisciplinary Studies. Vol. 3.2. Dec. 2011. Pp. 55-76.
[4] Cooley, F., Hansen, D. (1989). The Inflation Tax in a Real Business Cycle Model. American Economic Review. Vol 79, Pp.733-48. Economics.
[5] Eggoh, J., and Khan, M. (2014). On the Non-linear Relationship between Inflation and Economic Growth. Research Economics. Vol.68. No. 2. June 2014
[6] Engle, R. F. and Granger, C. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica, Vol. 55, No. 2, Pp. 251-276.
[7] Gillman, M., Harria, M., and Malyars, L. (2010). The Effect of Inflation and Growth. Evidence from a Panel of Transition Countries. Economics of Transition. Vol. 18(4). Pp. 697 – 714.
[8] Gokal, V. and Hanif, S. (2004). Relationship between Inflation and Economic Growth. Working Paper, 2004/4. Reserve Bank of Fiji. Dec. 2004.
[9] Hasanov, F. (2011). Relationship between Inflation and Economic Growth in Azerbijani Economy: Is There Any Threshold effect? MPRA. June, 2011.
[10] Hossain, M. (2015). The Relationship between Inflation and Economic Growth of Bangladesh: An Empirical Analysis From 1961-2013. International Journal of Economics, Finance, and Management Sciences. Vol. 13, Issue 5. Oct. 2015.
[11] Hussain, S. (2011) Inflation and Economic Growth: Evidence from Pakistan. International Journal of Economic and Finance, Vol. 3. No. 5. Pp. 262-276.
[12] Johansen, S. Juselius. K. (1990). Maximum Likelihood Estimation and Inference on Co-integration with the Application to the Demand for Money. Oxford Bulletin of Economics and Statistics. Vol. 52. Pp. 169-210.
[13] Joudaki, H., et al. (2014). Causal Relationship between Inflation and Economic Growth in Iran During the Years 1978-2011. Kuwait Chapter of the Arabian Journal of Business and Management Review. Vol. 3.6. Feb. 2014. Pp. 190-201.
[14] Khan, M. and Senhadji, A. (2001). Threshold Effects in the Relationship between Inflation and Growth. IMF Stuff Papers Vol. 48, No.1.
[15] Khan, M. (2002). Inflation, Financial Deepening, and Economic Growth. IMF. Paper for Banco de Mexico Conference on Macro economic, Stability, Financial Markets and Economic Development.
[16] Mallik, G. and Chowdhury, A. (2001) Inflation and Economic Growth: Evidence from Four South Asian Countries, Asian Pacific Development Journal, Vol. 8. No. 1. Pp. 123-135.
[17] Maduradperuma, M. (2016). The Impact of Inflation on Economic Growth in Srilanka. Journal of World Economic Research. Vol. 5, No. 1.
[18] Mubarik, Y. (2005). Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan. State Bank of Pakistan Research Bulletin. Vol. 1, No. 1-2. Pp. 35-44.
[19] Munir, Q. and Kasim, M. (2009). Non Linearity between Inflation Rate and GDP Growth in Malaysia. Economics Bulletin. Vol. 29, Issue 3.
[20] Sarel, M., (1996). Non-linear Effects of Inflation on Economic Growth. IMF Staff Papers. Vol. 43. Pp. 199-215.
[21] Sargsyan, G. (2005). Inflation and Output in Armenia: The Threshold Effect Revisited. Preceding of the 3rd International AIPRG conference on Armenia. Jan. 15-16. World Bank. Washington, DC.
[22] Sidrauski, M. (1967). Inflation and economic growth. Journal of Political Economy. Vol. 75. Pp. 796-810.
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  • APA Style

    Abdulaziz Hamad Algaeed. (2016). The Relationship Between Inflation and Economic Growth: A Further Evidence. Journal of World Economic Research, 5(5), 65-71. https://doi.org/10.11648/j.jwer.20160505.13

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    ACS Style

    Abdulaziz Hamad Algaeed. The Relationship Between Inflation and Economic Growth: A Further Evidence. J. World Econ. Res. 2016, 5(5), 65-71. doi: 10.11648/j.jwer.20160505.13

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    AMA Style

    Abdulaziz Hamad Algaeed. The Relationship Between Inflation and Economic Growth: A Further Evidence. J World Econ Res. 2016;5(5):65-71. doi: 10.11648/j.jwer.20160505.13

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  • @article{10.11648/j.jwer.20160505.13,
      author = {Abdulaziz Hamad Algaeed},
      title = {The Relationship Between Inflation and Economic Growth: A Further Evidence},
      journal = {Journal of World Economic Research},
      volume = {5},
      number = {5},
      pages = {65-71},
      doi = {10.11648/j.jwer.20160505.13},
      url = {https://doi.org/10.11648/j.jwer.20160505.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20160505.13},
      abstract = {This paper focuses on exploring the relationship between inflation and economic growth in Saudi Arabia. The real growth of non-oil measure is used as a dependent variable, whereas wholesale price is implemented as a proxy for inflation. This study covers the period of 1985-2015. The short and long-run relationships are estimated using co-integration techniques. The results support the existence of positive effects of inflation over economic growth. The threshold level of inflation for non-oil GDP is around a 10 percent. In addition, the long-run causality is running from inflation to real growth of non-oil GDP. The impulse responses test points out that future responsiveness of growth due to impulse of inflation is negative and significant after a year and a half. Whereas, the inflation responsiveness due to a shock in growth is effective positively after three years and a half in the future.},
     year = {2016}
    }
    

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    AU  - Abdulaziz Hamad Algaeed
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    T2  - Journal of World Economic Research
    JF  - Journal of World Economic Research
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    UR  - https://doi.org/10.11648/j.jwer.20160505.13
    AB  - This paper focuses on exploring the relationship between inflation and economic growth in Saudi Arabia. The real growth of non-oil measure is used as a dependent variable, whereas wholesale price is implemented as a proxy for inflation. This study covers the period of 1985-2015. The short and long-run relationships are estimated using co-integration techniques. The results support the existence of positive effects of inflation over economic growth. The threshold level of inflation for non-oil GDP is around a 10 percent. In addition, the long-run causality is running from inflation to real growth of non-oil GDP. The impulse responses test points out that future responsiveness of growth due to impulse of inflation is negative and significant after a year and a half. Whereas, the inflation responsiveness due to a shock in growth is effective positively after three years and a half in the future.
    VL  - 5
    IS  - 5
    ER  - 

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Author Information
  • Department of Economics, College of Economics and Administrative Sciences, Imam Mohamed bin Saud Islamic University, Riyadh, Saudi Arabia

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