Inflation and economic growth : evidence from four South Asian countries

This paper seeks to examine the relationship between inflation and GDP growth for four South Asian countries (Bangladesh, India, Pakistan and Sri Lanka). A comparison of empirical evidence is obtained from the cointegration and error correction models using annual data collected from the IMF International Financial Statistics. The authors find evidence of a long-run positive relationship between GDP growth rate and inflation for all four countries. There are also significant feedbacks between inflation and economic growth. These results have important policy implications. Moderate inflation is helpful to growth, but faster economic growth feeds back into inflation. Thus, these countries are on a knife-edge.