The impact of inflation on economic growth: evidence from a panel of selected Asia countries

Abstract

The objective of this paper is to ascertain whether inflation significantly impacts on economic growth for the selected Asia countries. The study relied on macroeconomic theories, the augmented Solow model, and empirical studies for seeking the key variables impacting growth. Simultaneously the quadratic model is employed to find out the impacts of inflation on growth, using a panel data of seven Asian countries in the period of 1990-2010. The fixed-effect method was used for capturing the differences among the selected countries. The results show that only China, India, Thailand, and Vietnam have a negative effect of inflation on growth, and among the countries, Thailand and Vietnam have statistically significant meaning at 1% and 5%. Meanwhile the rest of countries comprising Indonesia, Malaysia and Philippines contain the positive effect of inflation on growth. Except for Malaysia, Indonesia and Philippines have statistically significant meaning at 5%. For estimating thresholds for the countries, the paper adopted several methods including scatter diagrams, observing average inflation rates and the method of Khan and Senhadji. The outputs indicate that only India has the threshold at 7% and statistically significant meaning at 5%. The rest of countries including China, Indonesia, Malaysia, Philippines, Thailand and Vietnam also find out the levels of threshold in the relationship between inflation and economic growth are 6%, 12-13%, 4%, 10-13%, 4.2-4.5% and 8%; however, all are not statistically significant meaning.