DOES GROWTH CAUSE INFLATION IN EAST ASIA?: EMPIRICAL EVIDENCE FROM SIX COUNTRIES, 1975-99
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The causative chain between growth and inflation has been rigorously postulated and analyzed in several disparate theories. nevertheless, evidence to support it has been mixed. This paper endeavors empirically to shed more light on this relationship by testing it with pooled data during a 25-year period on six East Asian countries, an area known for its astoundingly rapid economic growth and industrialization. By the Granger-causality test, growth was found to cause inflation for Thailand and Indonesia while the same cannot be said of Korea, Malaysia, Singapore, and the Philippines. As to the reverse causation between inflation and growth, only Indonesia exhibits the phenomenon, indicating how inflation influences capital accumulation(both physical and human). However, when panel data are used in various estimating models(OLS, GLS, SUR), growth is found to cause inflation in these countries while the reverse is seriously in doubt
Abstract
The causative chain between growth and inflation has been rigorously postulated and analyzed in several disparate theories. nevertheless, evidence to support it has been mixed. This paper endeavors empirically to shed more light on this relationship by testing it with pooled data during a 25-year period on six East Asian countries, an area known for its astoundingly rapid economic growth and industrialization. By the Granger-causality test, growth was found to cause inflation for Thailand and Indonesia while the same cannot be said of Korea, Malaysia, Singapore, and the Philippines. As to the reverse causation between inflation and growth, only Indonesia exhibits the phenomenon, indicating how inflation influences capital accumulation(both physical and human). However, when panel data are used in various estimating models(OLS, GLS, SUR), growth is found to cause inflation in these countries while the reverse is seriously in doubt