Exploring the Inflation and Economic Growth Link: Evidence from a Panel Data Analysis of South Asian Economies

Purpose: This paper explores the inflation-growth relationship within South Asia. It aims to see the country-wise effects of inflation for Bangladesh, Bhutan, India, Sri Lanka, Nepal, and Pakistan over the period 2000-2019, and specify a threshold of inflation for the sample.
Design/Methodology/Approach: Panel data techniques, including the Levin Lin Chu (LLC) unit root test and fixed effect model, are used to analyze the overall relationship and Ordinary Least Squares (OLS) regression is employed to dissipate the country-wise effects. The study further uses a Dynamic Panel Threshold Model to find a threshold of
inflation and a bootstrap test to confirm the nonlinear relationship.
Findings: The study reveals an overall positive relationship between the two key variables. The country-wise results show a positive relationship between inflation and economic growth for Bangladesh, Sri Lanka and Pakistan, and a negative relationship for India, Bhutan, and Nepal. A significant nonlinear relationship is also confirmed over a threshold of 5.80%, beyond which inflation can have adverse effects on economic growth and vice versa.
Originality: This study contributes to existing literature by exploring the country-specific dimensions in the South Asian context. The country-wise analysis of this study is its distinguished feature, as it highlights the cross-country heterogeneities, specifies the nonlinear effects of inflation, and offers insights that can add value to both academics and policy design.