Inflation and Economic Growth: Evidence from the Southern African Development Community

In this paper, we investigate the role of inflation rates in determining economic growth in 15 sub‐Saharan African countries, which are all members of the S outhern A frican D evelopment C ommunity, between 1980 and 2009. The results, based on panel time‐series data and analysis (we use the fixed effects and fixed effects with instrumental variables estimators to account for heterogeneity and endogeneity in thin panels), suggest that inflation has had a detrimental effect to growth in the community. We highlight that inflation has offset the M undell– T obin effect and consequently reduced the much needed economic activity in the community, and also the importance of an institutional framework conducive to a stable macroeconomic environment as a precondition for development and prosperity in the community.