THE IMPACT OF INFLATION ON ECONOMIC GROWTH: A REVIEW OF EMPIRICAL STUDIES

Abstract

Inflation remains one of the most disputed macroeconomic variables in growth research because modest price increases can coexist with expansion, while persistent or volatile inflation may distort saving, investment, and productivity decisions. This study examines how the empirical literature explains the inflation–growth nexus and whether a consistent adverse threshold can be identified across countries and methods. The review employs a systematic secondary research design based on 34 empirical studies published between 1993 and 2025, including 15 studies from 2020–2025. Studies were screened from major journal platforms and policy repositories, coded by sample coverage, empirical design, and finding pattern, and synthesized through descriptive statistics and structured comparative analysis. The results show that 17 studies report a nonlinear threshold relationship, 8 identify a directly negative association, 6 report mixed or context-dependent effects, and 3 emphasize inflation uncertainty as a separate transmission channel. Overall, 28 of 34 studies (82.4%) support the view that inflation is growth-reducing either directly, beyond a threshold, or through heightened uncertainty. Among the 16 studies that report explicit threshold values, the estimated inflation threshold ranges from 4.0% to 16.46%, with a median of 8.0% and an interquartile range of 5.3%–10.9%. The major finding is that the literature converges on a conditional result rather than a universal linear rule: low and stable inflation may be compatible with growth, but growth performance deteriorates once inflation exceeds economy-specific tolerance bands or becomes more volatile, and the most credible threshold estimates cluster around single-digit to low double-digit inflation.

JEL Classification Codes: E31, O40, C23, C52, E52.