Modelling the Zimbabwe Inflation and Economic Development for Policy Reform

Abstract

This study sought to determine the implication of inflation on economic growth in Zimbabwe. The time series yearly data for inflation and economic growth from 1990 to 2017 were used for the study. A Full Modified Ordinary Least Squares (FMOLS) was used to determine the relationship between 
the variables. Some Stationarity and Cointegration tests were carried out. Data became stationarity after first and second differencing using Augmented Dickey Fuller Test. There was also evidence of cointegration between the two variables using the Johansen Cointegration Test. The results of the study established no relationship between inflation and economic growth for Zimbabwe. These results have important policy implications, implying that controlling inflation is a necessary but not a pre-condition for promoting economic growth in Zimbabwe. Thus, the Zimbabwean government should focus on maintaining inflation at a low rate (single digit). In this regard the study concluded that all factors 
which cause an increase in the general price levels such as energy (petrol, diesel, gasoline, paraffin), exchange rates volatility, increase in money supply, poor agricultural production and others, should be kept on check, with the appropriate policies to foster economic growth.