The Effect of Inflation and Unemployment on GDP: Evidence from Bangladesh
DOI:
https://doi.org/10.48165/sajssh.2023.4407Keywords:
GDP, Inflation, Unemployment, Augmented Dicky-Fuller, BangladeshAbstract
This study aims to investigate the impact of inflation and unemployment on GDP in Bangladesh from 1991 to 2021. The study utilizes unit root tests, the Autoregressive Distributed Lag (ARDL) Bound test, and the Error Correction Model (ECM) to analyze the relationships between these variables. The results indicate that GDP and inflation are stationary at both the level and first difference, while unemployment is stationary at the first difference and at the same time all three variables are stationary at the first difference. The ARDL Bound test reveals that both inflation and unemployment are harmful to GDP, hindering its growth over time. The F-statistics indicate a consistent relationship between the variables. The Error Correction Model shows a high correlation between the variables in both the short- and long-term, accounting for 82% of the equilibrium deviation. The findings suggest that policymakers should pay attention to the levels of inflation and unemployment in the country, as they have a significant impact on GDP growth.
References
Ademola, A., & Badiru, A. (2016). The impact of unemployment and inflation on economic growth in Nigeria (1981–2014), International Journal of Business and Economic Sciences Applied Research, 9(1).
Anning, L., Tuama, A. S., & Darko, S. (2017). Inflation, unemployment and economic growth: evidence from the var model approach for the economy of Iraq. International Journal of Developing and Emerging Economies, 5(1), 26-39.
Bawa, S. & Abdullahi, I. S. (2012). Threshold effect of inflation on economic growth in Nigeria. CBN Journal of Applied Statistics, 3(1), 43-63.
Bick, A. (2010). Threshold effects of inflation on economic growth in developing countries. Economics Letters, 108(2), 126-129.
Burdekin, R. C., Denzau, A. T., Keil, M. W., Sitthiyot, T., & Willett, T. D. (2004). When does inflation hurt economic growth? Different nonlinearities for different economies. Journal of macroeconomics, 26(3), 519-532.
Chu, A. C., Cozzi, G., Fan, H., & Furukawa, Y. (2021). Inflation, unemployment, and economic growth in a Schumpeterian economy. The Scandinavian Journal of Economics, 123(3), 874-909.
Dritsakis, N., & Stamatiou, P. (2016). The effects of unemployment on economic growth in Greece. An ARDL bound test approach. The Romanian Economic Journal, 19(62), 53- 72.
Gokal, V., & Hanif, S. (2004). Relationship between inflation and economic growth (Vol. 4). Suva: Economics Department. Reserve Bank of Fiji.
Jelilov, G., Obasa, O. J., & Isik, A. (2016). Impact of inflation and unemployment on economic growth in ten (10) selected member’s states of economic community of West Africa States (ECOWAS)(2001-2014). Advances in Economics and Business, 4(5), 222-244.
Li, C. S., & Liu, Z. J. (2012). Study on the relationship among Chinese unemployment rate, economic growth and inflation. matrix, 1(1), 4.
Lubbock, K. J., Merin, M., & Gonzalez, A. (2022). The Impact of Inflation, Unemployment, and Population Growth on Philippine Economic Growth. Journal of Economics, Finance and Accounting Studies, 4(2), 55-64.
Mohseni, M., & Jouzaryan, F. (2016). Examining the effects of inflation and unemployment on economic growth in Iran (1996-2012). Procedia Economics and Finance, 36, 381- 389.
Musarat, M. A., Alaloul, W. S., & Liew, M. S. (2021). Impact of inflation rate on construction projects budget: A review. Ain Shams Engineering Journal, 12(1), 407-414.
Ndoricimpa, A. (2017). Threshold effects of inflation on economic growth: is Africa different? International Economic Journal, 31(4), 599-620.
Sahnoun, M., & Abdennadher, C. (2019). Causality between inflation, economic growth and unemployment in North African countries. Economic Alternatives, 1, 77-92.
Sa’idu, B. M., & Muhammad, A. A. (2015). Do unemployment and inflation substantially affect economic growth. Journal of Economics and Development Studies, 3(2), 132- 139.
Salamai, A. A., Faisal, S. M., & Khan A. K. (2022). The relationship between inflation and GDP with reference to oil-based economy. International Journal of Multidisciplinary Research and Growth Evaluation.
Shahid M. (2014). Effect of inflation and unemployment on economic growth in Pakistan. Journal of economics and sustainable development, 5(15), 103-106.
Sumartini, S., & Riswanto, A. (2017). Indonesian Economic Growth Rate: Inflation and Unemployment Rate Analysis. In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017) (pp. 714-717).
Ramzan, M. (2021). Impact of inflation and unemployment on the economic growth of Pakistan. European Journal of Business and Management Research, 6(4), 282-288.
Tenzin, U. (2019). The nexus among economic growth, inflation and unemployment in Bhutan. South Asia Economic Journal, 20(1), 94-105.
Tien, N. H. (2021). Relationship between inflation and economic growth in Vietnam. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(14), 5134-5139.
Ullah, S., Apergis, N., Usman, A., & Chishti, M. Z. (2020). Asymmetric effects of inflation instability and GDP growth volatility on environmental quality in Pakistan. Environmental Science and Pollution Research, 27, 31892-31904.
Yelwa, M., David, O. O., & Awe, E. O. (2015). Analysis of the relationship between inflation, unemployment and economic growth in Nigeria: 1987-2012. Applied economics and finance, 2(3), 102-109.
Downloads
Published
Issue
Section
License
Copyright (c) 2023 South Asian Journal of Social Sciences and Humanities
This work is licensed under a Creative Commons Attribution 4.0 International License.