Long Run Inflation-Growth Nexus in Developing Economies: Old Wine in a New Bottle

Abstract

This paper examines the long-run inflation-growth relationship in developing
economies by placing emphasis on sectoral heterogeneity and crosssectional dependence. This relation is explored using a large panel dataset of
113 developing economies over the period 1974-2013. The empirical
findings are consistent with a linear negative relationship. An annual
increase of 10 percent in average inflation rate tends to reduce the GDP
growth by 0.12-0.20 percentage points. Inflation is however found to
positively affect economic growth if the value-added share of agricultural
sector in the total output exceeds the threshold level of 50 percent. The
opposite applies if the value added share falls below this threshold level.