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The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020

Received: 16 October 2022     Accepted: 31 October 2022     Published: 22 May 2023
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Abstract

The research examines the effect of inflation on economic growth in Tanzania. The study employs the secondary time series data from 1970 to 2020 taken from the Bank of Tanzania, and the VECM is used to find the cointegration between variables to show the short-run and long-run dynamics. Graphical analysis and Augmented Dickey-Fuller tests are conducted to find the unit root in the model. All variables are stationary and integrated in the same order I(1). The results show that the error correction is significantly negative. That is, the annual rate of adjustment required to achieve long-run equilibrium is 28.31 percent. Based on the findings in the short-run, the extended money supply and interest rates have negative and insignificant effects on GDP, while the exchange rate has an inversely significant effect on GDP. Inflation targeting has a favourable insignificant effect on GDP. Long-run results show that extended money supply, exchange rates, and interest rates have positive significant effects on economic growth, whereas inflation targetinghas negative significant effects on GDP. It is recommended that the government, policymakers, and financial institutions focus on managing inflation by the prudent implementation of fiscal and monetary policies and maintaining a regulation of interest rates, the extended money supply, and real exchange rates also inflation targeting should be emphasised by improving the central bank's communication, transparency, and accountability to avoid inflation volatility and stimulate economic growth.

Published in Journal of Business and Economic Development (Volume 8, Issue 1)
DOI 10.11648/j.jbed.20230801.14
Page(s) 22-31
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), 2023. Published by Science Publishing Group

Keywords

Inflation, Economic Growth, Inflation Targeting, Tanzania

References
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[2] Adaramola, D. O. (2020). Impact of Inflation on Economic growth: evidence from Nigeria. Investment Management and Financial Invovations, Vol 17 (2), 1-13. http://dx.doi.Org /10.21511/imfi.17(2).2020.01.
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[6] Gujarati, D. (2004). Basic Econometrics, Fourth edition. Printed by the McGraw-Hill companies.
[7] Hussain, Z. T. (2018). The Interrelationship between Money Supply, Inflation, Public Expenditure and Economic Growth. European Online Journal of Natural and Social Sciences, Vol 7 (1), 1-24. http://www.european-science.com.
[8] Joshi, U. (2021). Inflation and Economic Growth Paradox: A Co- intergration Analysis in Nepal. International Research Journal of MMC (IRJMMC), Vol 2 (3), 1-12. doi: https://doi.o rg/10.3126/irjmmc.v2i3.40055.
[9] Kasidi, M. (2013). Impact of inflation on economic growth: a case study of Tanzania. Asian Journal of Empirical Research, Vol 3 (4), 363-380. http://aessweb.com/journal-detail. php?id=5004.
[10] Kotsokoane, R. R. (2021). Inflation Targeting and Economic Growth in South Africa – An Econometric Analysis. ŒCONOMICA: AUDOE, Vol. 17, No 3/2021, 161-180.
[11] Laryea, S. U. (2001). Determinants of inflation in Tanzania. Development Studies and Human Rights- WP 2001 (12), 1-22. https://www.cmi.no/.
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[15] Mukoka, S. (2018). An Econometrical Assessment of the Impact of Inflation on Economic Growth: case study of Zimbabwe Economy. Economy, Economics, Vol 7 (1), 17-22. doi: 10.11648/j.eco.20180701.13.
[16] Mwinlaaru, Y. P., & Ofori, K. (2017). Real exchange rate and economic growth in Ghana. MPRA Munich Personal RePEc Archive, MPRA Paper No. 82405, 1-45. https://mpra.ub. Uni-muenchen.de/82405/.
[17] Nyorekwa, О. N. (2014). “Monetary policy performance in Tanzania (1961-2014): a review”. Banks and Bank Systems, Vol 9 (4), 8-15.
[18] Obamuyi, T. (2009). An investigation of the relationship between interest rates and economic growth in Nigeria, 1970 - 2006. Journal of Economics and International Finance Vol. 1 (4), 093-098. http://www.academicjournals.org/JEIF.
[19] Omodero, C. (2019). Effect of Money Supply on Economic Growth: Acomparative study of Nigeria and Ghana. International Journal of Social Science Studies, Vol 7 (3), 16-23. doi: 10.11114/ijsss.v7i3.4137.
[20] Preethi, S. V. (2021). Co-integration and causal- Nexus between Inflation rate and Economic Growth in India.International Resarch Journal of Science and Humanities, 1-21.
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[22] Tatliyer, M. (2017). Inflation targeting and the need for a new central banking framework. Journal of Post Keynesian Economics, Vol 40 (4), 512-539: https://doi.org/10.1080/01603477.2017.1368026.
[23] Uddin, I. (2021). Impact of Inflation on Economic Growth in Pakistan. Economic Consultant Vol 34 (2), 33-44. doi: 10.46224/ecoc.2021.2.4.
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Cite This Article
  • APA Style

    Goodluck Sanga, Mukole Kongolo, Rosemary Mnongya. (2023). The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020. Journal of Business and Economic Development, 8(1), 22-31. https://doi.org/10.11648/j.jbed.20230801.14

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    ACS Style

    Goodluck Sanga; Mukole Kongolo; Rosemary Mnongya. The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020. J. Bus. Econ. Dev. 2023, 8(1), 22-31. doi: 10.11648/j.jbed.20230801.14

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    AMA Style

    Goodluck Sanga, Mukole Kongolo, Rosemary Mnongya. The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020. J Bus Econ Dev. 2023;8(1):22-31. doi: 10.11648/j.jbed.20230801.14

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  • @article{10.11648/j.jbed.20230801.14,
      author = {Goodluck Sanga and Mukole Kongolo and Rosemary Mnongya},
      title = {The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020},
      journal = {Journal of Business and Economic Development},
      volume = {8},
      number = {1},
      pages = {22-31},
      doi = {10.11648/j.jbed.20230801.14},
      url = {https://doi.org/10.11648/j.jbed.20230801.14},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20230801.14},
      abstract = {The research examines the effect of inflation on economic growth in Tanzania. The study employs the secondary time series data from 1970 to 2020 taken from the Bank of Tanzania, and the VECM is used to find the cointegration between variables to show the short-run and long-run dynamics. Graphical analysis and Augmented Dickey-Fuller tests are conducted to find the unit root in the model. All variables are stationary and integrated in the same order I(1). The results show that the error correction is significantly negative. That is, the annual rate of adjustment required to achieve long-run equilibrium is 28.31 percent. Based on the findings in the short-run, the extended money supply and interest rates have negative and insignificant effects on GDP, while the exchange rate has an inversely significant effect on GDP. Inflation targeting has a favourable insignificant effect on GDP. Long-run results show that extended money supply, exchange rates, and interest rates have positive significant effects on economic growth, whereas inflation targetinghas negative significant effects on GDP. It is recommended that the government, policymakers, and financial institutions focus on managing inflation by the prudent implementation of fiscal and monetary policies and maintaining a regulation of interest rates, the extended money supply, and real exchange rates also inflation targeting should be emphasised by improving the central bank's communication, transparency, and accountability to avoid inflation volatility and stimulate economic growth.},
     year = {2023}
    }
    

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  • TY  - JOUR
    T1  - The Effect of Inflation on Economic Growth in Tanzania for the Period of 1970-2020
    AU  - Goodluck Sanga
    AU  - Mukole Kongolo
    AU  - Rosemary Mnongya
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    PY  - 2023
    N1  - https://doi.org/10.11648/j.jbed.20230801.14
    DO  - 10.11648/j.jbed.20230801.14
    T2  - Journal of Business and Economic Development
    JF  - Journal of Business and Economic Development
    JO  - Journal of Business and Economic Development
    SP  - 22
    EP  - 31
    PB  - Science Publishing Group
    SN  - 2637-3874
    UR  - https://doi.org/10.11648/j.jbed.20230801.14
    AB  - The research examines the effect of inflation on economic growth in Tanzania. The study employs the secondary time series data from 1970 to 2020 taken from the Bank of Tanzania, and the VECM is used to find the cointegration between variables to show the short-run and long-run dynamics. Graphical analysis and Augmented Dickey-Fuller tests are conducted to find the unit root in the model. All variables are stationary and integrated in the same order I(1). The results show that the error correction is significantly negative. That is, the annual rate of adjustment required to achieve long-run equilibrium is 28.31 percent. Based on the findings in the short-run, the extended money supply and interest rates have negative and insignificant effects on GDP, while the exchange rate has an inversely significant effect on GDP. Inflation targeting has a favourable insignificant effect on GDP. Long-run results show that extended money supply, exchange rates, and interest rates have positive significant effects on economic growth, whereas inflation targetinghas negative significant effects on GDP. It is recommended that the government, policymakers, and financial institutions focus on managing inflation by the prudent implementation of fiscal and monetary policies and maintaining a regulation of interest rates, the extended money supply, and real exchange rates also inflation targeting should be emphasised by improving the central bank's communication, transparency, and accountability to avoid inflation volatility and stimulate economic growth.
    VL  - 8
    IS  - 1
    ER  - 

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Author Information
  • Department of Economics, St. Augustine University of Tanzania, Mwanza, Tanzania

  • Department of Economics, St. Augustine University of Tanzania, Mwanza, Tanzania

  • Department of Economics, St. Augustine University of Tanzania, Mwanza, Tanzania

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