This paper examines the long-run inflation-growth relationship in developing economies by placing emphasis on sectoral heterogeneity and cross-sectional dependence. This relation is explored using a large panel dataset of 113 developing economies over the period 1974-2013. The empirical findings are consistent with a linear negative relationship. An annual increase of 10 percent in average inflation rate tends to reduce the GDP growth by 0.12-0.20 percentage points. Inflation is however found to positively affect economic growth if the value-added share of agricultural sector in the total output exceeds the threshold level of 50 percent. The opposite applies if the value added share falls below this threshold level.
|Cross-sectional dependence; developing economies; economic|
|growth; inflation; heterogeneity.|
E31; E58; O41