Effect of Inflation Rate on Economic Growth in East African Countries: Aggregated Panel Approach

Author

Wycliffe Mugun


Abstract

 Unraveling the linkage between inflation and economic growth has been a principal matter of debate among economists and policy makers worldwide for decades, particularly in emerging countries such as East African region. However, owing to the fact that there are limited studies on inflation rate and economic growth, various studies indicate inconclusive views on the effect of inflation rate on economic growth. For this reason, it is not clear whether or not inflation rate affect economic growth in East African countries. The main objective of the study was to examine the effect of inflation rate on economic growth in East African Countries. The null hypothesis test in the study stated that inflation rate does not affect gross domestic product in East African Countries. The study used World Bank data for a panel of 5 countries for the period from 2000 to 2024. Hausman specification test was employed so as to ascertain whether to use fixed or the random effect model in the estimation. Results of fixed effect regression model indicated that natural log of inflation rate has positive and significant effect on natural log of economic growth which was statistically significant at five percent level. The study results recommends that maintaining price stability should be treated as both an economic and social priority in East African countries. Besides, strengthening monetary policy credibility, improving coordination between fiscal and monetary authorities, and enhancing food market regulation particularly during climate-induced supply disruptions which are critical for anchoring inflation expectations and protecting household welfare.


Keywords

Economic growth, Inflation rate, East African Countries



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References


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