INFLATION AND ECONOMIC GROWTH IN SIERRA LEONE

Saidu Swaray

Working Papers from African Economic Research Consortium

Abstract: The study examined the relationship between inflation and economic growth in Sierra Leone using annual data for the period 1979 to 2008. Employing autoregressive distributed lag (ARDL) approach to cointegration, the study found a cointegrating relationship among the variables when real GDP was used as the dependent variable and no cointegrating relationship among the variables when inflation was used as the dependent variable. The bounds test results revealed that inflation exerted a negative and statistically significant effect on economic growth both in the short-run and long-run suggesting that higher rates of inflation is inimical to economic growth in Sierra Leone. Also, investment as a share of GDP and government expenditure exerted a positive and statistically significant impact on economic growth both in the short-run and long-run suggesting that government expenditure and investment are critical in enhancing sustained economic growth and development. The Granger causality test result revealed a unidirectional causality between inflation and economic growth and ran from economic growth to inflation. Thus, the study concluded that government expenditure in the form of investment is an important channel through which the economy can achieve economic growth. Hence, the study recommended that government should embark on judicious investment especially in infrastructure to achieve sustained economic growth.

Date: 2011-08-03
Note: African Economic Research Consortium
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