Inflation and economic growth: A multi-country empirical analysis

The world economy is currently adjusting to a low inflation regime which has implications for the cross-country distribution of world growth opportunities. In contrast to previous related work which assumes unidirectional causality, this paper uses the Granger methodology to examine both the direction and pattern of causality between inflation and economic growth in 70 countries using annual data over the period 1960-89. Among the conclusions are that first, the relationship between inflation and growth is non-uniform across countries: 40% of countries studied reveal no causality, one-third exhibit unidirectional causality and about one-fifth of countries show bidirectional causality, second, a vast majority of countries which show either uni- or bi-directional causality belong to the industrial group, and third, the low world inflation regime will on balance redistribute real growth opportunities benefit away from the developing countries towards the industrialized countries.