Skip to main content
SpringerLink
Log in

Relationship Between Inflation and Real Economic Growth in Rwanda

  • Chapter
  • First Online:
Studies on Economic Development and Growth in Selected African Countries

Part of the book series: Frontiers in African Business Research ((FABR))

Abstract

This study examines the impact of economic stability measures (inflation and unemployment rates) on real gross domestic product (GDP) in Rwanda. It uses quarterly data for the period of 2000Q1–2015Q4 collected from the Ministry of Finance and Economic Planning, Central Bank of Rwanda and the National Institute of Statistics of Rwanda (NISR). This study concludes that inflation and unemployment have a long-run negative and significant relationship on real gross domestic product. In the long run, the coefficients are not significant at the 5% level; it is only the inflation coefficient and error which are significant. Real gross domestic product increases when inflation reduces with a p-value of 0.00266; real gross domestic product increases when unemployment reduces with a p-value of 0.09882. The coefficient from the error correction model means that the effect of the shock will reduce by 0.0483% each quarter, meaning that the effect of the shock will reduce by 19.32% in each 4th quarter. This further means that it will end at 20 quarters, that is, after a five-year period. It has to be highlighted that there is a weak relationship between real gross domestic product and both inflation and unemployment rates.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 119.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 159.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 159.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Ahmed S (2010) An empirical study on inflation and economic growth in Bangladesh. OIDA Int J Sustain Dev 2(3):41–48

    Google Scholar 

  • Barro R (1987) Determinants of economic growth, a cross country empirical study. MIT Press, Cambridge, Mass

    Google Scholar 

  • Bhatia RJ (1960) Inflation, deflation, and economic development. Int Monetary Fund 8(1):101–114

    Article  Google Scholar 

  • Blanchard OJ, Kiyotaki N (1987) Monopolistic competition and the effects of aggregate demand. Am Econ Rev 77(4):647–666

    Google Scholar 

  • Bourbonnais R (2007) Econométrie, 6ème édn. Dunod, Paris

    Google Scholar 

  • Bruno M, Easterly W (1995) Inflation crises and long-run growth. NBER Working Papers No. 5209, National Bureau of Economic Research. Available at: http://ideas.repec.org/p/nbr/nberwo/5209.html

  • Bruno M, Easterly W (1998) Inflation crisis and long-run growth. J Monetary Econ 41:3–26

    Article  Google Scholar 

  • Chan KS, Tsay RS (1998) Limiting properties of the least square estimator of a continuous threshold autoregressive model. Biometrica 85:413–426

    Article  Google Scholar 

  • Chimobi OP (2010) Inflation and economic growth in Nigeria. J Sustain Dev 3(2):159–166

    Google Scholar 

  • Datta K, Kumar C (2011) Relationship between inflation and economic growth in Malaysia. International conference on economics and finance research IPEDR Vol. 4, No. 2, pp 415–416

    Google Scholar 

  • De Gregorio J (1992) The effect of inflation on economic growth. Eur Econ Rev 36(2–3):417–425

    Article  Google Scholar 

  • De Gregorio J (1996) Inflation, growth and Central Banks: theory and evidence. The World Bank, Policy Research Working Paper No. 1575

    Google Scholar 

  • Dornbusch R, Fischer S, Kearney C (1996) Macroeconomics. The Mc-Graw-Hill Companies Inc., Sydney

    Google Scholar 

  • Dorrance GS (1966) Inflation and growth. Int Monetary Fund 13(1):82–102

    Article  Google Scholar 

  • Dorrance S (1963) The effect of inflation on economic development. Int Monetary Fund 10(1):1–47

    Article  Google Scholar 

  • Drukker D, Hernandez-Verme P, Gomis-Porgueras P (2005) Threshold effects in the relationship between Inflation and Growth: a new Panel-Data Approach. Working paper presented at the 11 th International conference on panel—data, Texas A&M University, College Station, Texas

    Google Scholar 

  • Enu P, Attah-Obeng P, Hagan E (2013) The relationship between GDP growth rate and inflationary rate in Ghana: an elementary statistical approach. Acad Res Int 4(5):310–318

    Google Scholar 

  • Erbaykal E, Okuyan H (2008) Does inflation depress economic growth? Evidence from Turkey. Int Res J Finance and Econ 13(17):40–48

    Google Scholar 

  • Ernst C, Berg J (2009) The role of employment and labour markets in the fight against poverty. In: Promoting Pro-Poor Growth, Employment. OECD. http://www.oecd.org/dac/povertyreduction/43514554.pdf Accessed 15 Apr 2017

  • Ferdous M, Mahbuba Shahid E (2013) Study on nature of inflation and its relationship with GDP growth rate: a Case Study on Bangladesh. IOSR J Econ Finance 1(3):40–49

    Article  Google Scholar 

  • Fischer S (1993) The role of macroeconomic factors in growth. J Monetary Econ 32(3):485–511

    Article  Google Scholar 

  • Gokal V, Hanif S (2004) Relationship between Inflation and Economic Growth in Fiji. Reserve Bank of Fiji Suva, Fiji, Economics Department. Working Paper No. 4

    Google Scholar 

  • Granger CWJ (1969) Investigating causal relationships by econometric models and cross-spectral methods. Econometrica 37(3):424–438

    Article  Google Scholar 

  • Gujarati DR (2004) Basic econometrics, 4th edn. Tata McGraw Hill

    Google Scholar 

  • Hansen BE (2000) Sample splitting and threshold estimation. Econometrica 68:575–603

    Article  Google Scholar 

  • Haslag JH (1997) Output, growth, welfare, and inflation: a survey. Econ Rev Second Q, Int Monetary Fund 8(11–12):1011–1014

    Google Scholar 

  • Iqbal N, Din M, Ghani E (2012) Fiscal decentralisation and economic growth: role of democratic institutions. Pak Develop Rev 52(3):176–196

    Google Scholar 

  • Johanson HG (1967) Is inflation a retarding factor in economic growth? In fiscal and monetary problems in developing states. Proceedings of the third Rehoroth conference. Preager, New York, pp 121–130

    Google Scholar 

  • Khan MS, Senhadji SA (2001) Threshold effects in the relationship between inflation and growth. Int Monetary Fund 48(1):1–21

    Google Scholar 

  • Kigume RW (2011) The relationship between inflation and economic growth in Kenya. Int J Bus Soc Sci 3(10). Available at: http://ir-library.ku.ac.ke/handle/123456789/2124

  • Kilindo A (1997) Fiscal operations, money supply and inflation in Tanzania. Afr Econ Res Consortium 65(3):1–7

    Google Scholar 

  • Levine L (2013) Economic growth and the unemployment rate. Congressional research service, 7-5700, R 42063, CRS report for congress, pp 1–10

    Google Scholar 

  • Levinsohn J (2008) Two policies to alleviate unemployment in South Africa. Center for International Development, at Harvard University, CID Working Paper No. 166

    Google Scholar 

  • Luppu DV (2009) The correlation between inflation and economic growth in Romania. Luccrari Stiintifice, p 53

    Google Scholar 

  • Madhukar S, Nagarjuna B (2011) Inflation and growth rates in India and China: a perspective of transition economies. Int Conf Econ Finance Res 4(97):489–490

    Google Scholar 

  • Mallik G, Chowdury A (2001) Inflation and economic growth: evidence from four South Asian countries. Asia-Pac Dev J 8(1):123–135

    Google Scholar 

  • Mankiw NG, Romer D, Well DN (1992) A contribution to the empirics of economic growth. Quart J Econ 107(2):407–437

    Article  Google Scholar 

  • Mosikari TJ (2013) The effect of unemployment rate on gross domestic product: case of South Africa. Mediterr J Soc Sci 4(6):429–434

    Google Scholar 

  • Motley B (1994) Growth and inflation: a cross-country study. Center for economic policy research, Stanford University, CEPR Publication No. 395, pp 15–28

    Google Scholar 

  • Mubarik YA (2005) Inflation and growth: an estimate of the threshold level of INFLATION in Pakistan. SBP-Res Bull 1(1):35–43

    Google Scholar 

  • Mundell R (1963) Inflation and real interest. J Polit Econ 71(3):280–283

    Article  Google Scholar 

  • Pradana MBJ, Rathnayaka MKTR (2013) Testing the link between inflation and economic growth: evidence from Asia. Mod Econ 4:87–92

    Article  Google Scholar 

  • Prasanna S, Gopakumar K (2010) An empirical analysis of inflation and economic growth in India. Int J Sustain Dev 15(2):4–5

    Google Scholar 

  • Richard T (1998) Macroeconomics theories and policies, 6th edn. University of North Carolina at Chapel Hill

    Google Scholar 

  • Sarel M (1995) Nonlinear effects of inflation on economic growth. Int Monetary Fund 43(1):199–215

    Article  Google Scholar 

  • Sidrauski M (1967) Inflation and economic growth. J Polit Econ 75(6):796–810

    Article  Google Scholar 

  • Stein P (2010) The economics of Tanzania, Kenya, Uganda, Rwanda and Burundi. Report prepared for Swed Fund International AB, pp 12–32

    Google Scholar 

  • Stockman AC (1981) Anticipated inflation and the capital stock in a cash-in-advance economy. J Monetary Econ 8:387–393

    Article  Google Scholar 

  • Tobin J (1965) Money and economic growth. Econometrica 33(4):671–684

    Article  Google Scholar 

  • Umaru A, Zubairu J (2012) The effect of inflation on the growth and development of the Nigerian economy: an empirical analysis. Int J Bus Soc Sci 3(10):187–188

    Google Scholar 

  • Wai UT (1959) The relationship between inflation and economic development: a statistical inductive study. Int Monetary Fund 7(2):302–317

    Article  Google Scholar 

  • Xiao J (2009) The relationship between inflation and economic growth of China: empirical study from 1978–2007. Lund University, Sweden, pp 1–56

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. College of Business and Economics, University of Rwanda, Butare, Rwanda

    Ferdinand Nkikabahizi & Joseph Ndagijimana

  2. Economy and Rural Development Unit, Gembloux Agro-Bio Tech, University of Liège, Liège, Belgium

    Edouard Musabanganji

Authors
  1. Ferdinand Nkikabahizi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Joseph Ndagijimana
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Edouard Musabanganji
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ferdinand Nkikabahizi .

Editor information

Editors and Affiliations

  1. Jönköping International Business School, Jönköping University, Jönköping, Sweden

    Almas Heshmati

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer Nature Singapore Pte Ltd.

About this chapter

Cite this chapter

Nkikabahizi, F., Ndagijimana, J., Musabanganji, E. (2017). Relationship Between Inflation and Real Economic Growth in Rwanda. In: Heshmati, A. (eds) Studies on Economic Development and Growth in Selected African Countries. Frontiers in African Business Research. Springer, Singapore. https://doi.org/10.1007/978-981-10-4451-9_6

Download citation

Publish with us

Policies and ethics

Search

Navigation