The relationship between GDP growth rate and inflationary rate in Ghana: an elementary statistical approach

Abstract

The study determines the relationship between GDP (Gross Domestic Product) growth rate and inflationary rate in Ghana from the period 1980 to 2012. The study employs the methods of scatter plot, correlation analysis and simple linear regression estimated using OLS (Ordinary Least Squares). All the three approaches proved that there is a strong negative linear relationship between GDP growth rate and inflation rate in Ghana. That is a 1% increase in inflation rate will cause GDP growth rate to decrease by 0.0864724%. However, a 1% decrease in inflation rate will cause GDP growth rate to increase by 0.0864724%. This value is statistically significant at the 5% level of significance. Therefore, policy makers should formulate and implement monetary, fiscal and physical policies that will continue to keep inflation rate downward to enhance economic growth and stability