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ABSTRACT. This study examines the nexus between inflation dynamics and economic growth in South Africa. Specifically, the study aims to assess whether the inflation Granger-causes economic growth in South Africa. In order to address the problem of omitted variable bias associated with some previous studies, the study incorporates the employment as a third (intermittent) variable affecting both inflation and economic growth – thereby creating a trivariate causality model. Using the recently developed ARDL-bounds testing approach, the study finds that there is a bidirectional causal relationship between inflation and economic growth in South Africa. The results apply, irrespective of whether the causality model is estimated in the short run or in the long run. Other results show that there is a prima facie causal flow from economic growth to employment in South Africa. pp. 27–41
JEL Codes: E31, P24, D92, O41

Keywords: Africa, South Africa, inflation, economic growth, ARDL-bounds testing approach

NICHOLAS M. ODHIAMBO
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Economics Department
University of South Africa

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