ANALYSIS OF THE EFFECTS OF INFLATION ON THE ECONOMIC GROWTH

OF KENYA FROM 1990 TO 2021

NOAH REAGAN WESONGA

K24/3371/2019

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS,

ECONOMICS AND TOURISM IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF DEGREE OF ECONOMICS AND
STATISTICS, KENYATTA UNIVERSITY

DECEMBER, 2022
 DECLARATION

I declare that this research project is my original work and it has never been submitted for

award of degree in any institution of higher learning that I am aware of.

Signature:…………..………………………… Date:…..……………………………….

Noah Reagan Wesonga

K24/3371/2019

SUPERVISOR’S APPROVAL

This research project has been submitted for examination with my approval as the university

supervisor.

Signature:…………..………………………… Date:…..……………………………….

MS. Margaret Mukundi

Department of Econometrics and Statistics

Kenyatta University

ii
 DEDICATION

I dedicate this research project to my parents Mr. and Mrs. Munyendo together with my

siblings Clifford and Faith who have always believed in me.

iii
 ACKNOWLEDGEMENT

I acknowledge my course instructor Ms Margaret Mukundi without whose support I could

have not finished this project in time, her guidance and dedication, have not only been

instrumental but also informative and timely. I would also like to express my gratitude to my

father, Mr Julius Munyendo, who has helped me get through some challenging times in my

academic journey. I also thank the unique assistance I received from my family, friends, and

siblings who prayed for me and their unending belief in me. I thank my dearest friend Mercy

Nyongesa for her unwavering love and support; she always had faith in my ability to succeed.

I acknowledge my classmates with whom I have walked through this scholastic adventure

side by side.

iv
 TABLE OF CONTENTS

DECLARATION......................................................................................................................ii
DEDICATION........................................................................................................................iii
ACKNOWLEDGEMENT......................................................................................................iv
TABLE OF CONTENTS.........................................................................................................v
LIST OF TABLES.................................................................................................................vii
LIST OF FIGURES..............................................................................................................viii
ABBREVIATIONS AND ACRONYMS...............................................................................ix
DEFINITION OF TERMS......................................................................................................x
ABSTRACT............................................................................................................................xii
CHAPTER ONE.......................................................................................................................1
INTRODUCTION....................................................................................................................1
1.1 Background of the study......................................................................................................1
1.2 Inflation Dynamics in Kenya...............................................................................................2
1.2 Measuring Inflation in Kenya..............................................................................................4
1.3 Statement of the problem.....................................................................................................4
1.4. Research Objectives............................................................................................................5
1.5 Research Questions..............................................................................................................5
1.6 Justification of the Study......................................................................................................6
1.7 Scope and Limitations of the Study.....................................................................................6
CHAPTER TWO.....................................................................................................................7
LITERATURE REVIEW........................................................................................................7
2.1 Introduction..........................................................................................................................7
2.2 Theoretical Literature Review..............................................................................................7
2.2.1 Classical Theory................................................................................................................7
2.2.2 Keynesian Theory.............................................................................................................9
2.2.3 Monetarism.....................................................................................................................10
2.2.4 Neo-classical Theory.......................................................................................................11
2.2.5 Neo-Keynesian Theory...................................................................................................11
2.2.6 Endogenous Growth Theory...........................................................................................12
2.3 Empirical Literature...........................................................................................................13
2.4 Overview of Literature.......................................................................................................14
CHAPTER THREE...............................................................................................................16
METHODOLOGY.................................................................................................................16

v
3.1 Introduction........................................................................................................................16
3.2 Research Design.................................................................................................................16
3.3 Conceptual Framework......................................................................................................17
3.4 Model specification............................................................................................................17
3.5 Description and Measurement of Variable........................................................................18
3.6 Data Types and Sources.....................................................................................................18
3.7 Data Processing and Analysis............................................................................................18
CHAPTER FOUR..................................................................................................................20
DATA ANALYSIS, FINDINGS, PRESENTATION AND DISCUSSION.......................20
4.1 Introduction........................................................................................................................20
4.2 Descriptive Statistics..........................................................................................................20
4.2.1 Economic Growth...........................................................................................................21
4.2.2 Inflation Rate...................................................................................................................21
4.3 Inferential Analysis............................................................................................................22
4.3.1 Pearson’s Correlation Analysis.......................................................................................22
4.3.2 Regression Analysis........................................................................................................22
4.3.2.1 Model Summary...........................................................................................................23
4.3.2.2 Analysis of Variance (ANOVA)..................................................................................23
4.3.2.3 Regression Coefficient.................................................................................................24
4.4 Discussion of Findings.......................................................................................................25
CHAPTER FIVE....................................................................................................................26
SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS....................................26
5.1 Introduction........................................................................................................................26
5.2 Summary of Findings.........................................................................................................26
5.2 Conclusions........................................................................................................................27
5.3 Contribution to Knowledge................................................................................................27
5.4 Policy Implications.............................................................................................................28
5.5 Areas for Further Research................................................................................................29
REFERENCES.......................................................................................................................30
APPENDICES........................................................................................................................35

vi
 LIST OF TABLES

Table 4.1: Descriptive Statistics...............................................................................................20

Table 4.2: Pearson’s Correlation Table....................................................................................22

Table 4.3: Regression Statistics...............................................................................................23

Table 4.4: Analysis of Variance...............................................................................................23

Table 4.5: Regression Coefficient............................................................................................24

vii
 LIST OF FIGURES

Figure 3.1: Conceptual Framework..........................................................................................17

viii
 ABBREVIATIONS AND ACRONYMS

IMF - International Monetary Fund

CBK - Central Bank of Kenya

KNBS - Kenya National Bureau of Statistics

GDP - Gross Domestic Product

CPI - Consumer Price Index

WPI - Wholesale Price Index

AD-AS - Aggregate Supply-Aggregate Demand

NAIRU - Non Accelerating Inflation Rate of Unemployment

OMO - Open Market Operation

COVID-19 - Coronavirus Disease-2019

FDI - Foreign Direct Investment

PEV - Post Election Violence

ix
 DEFINITION OF TERMS

Monetary policies- is a set of measures to regulate a nation's overall money supply and

achieve economic growth such as adjustment of interest rates by CBK

Fiscal policies- refers to the application of government expenditure and tax policies to

influence economic conditions, especially macroeconomic conditions.

Inflation- refers to a general increase in the prices of goods and services in an economy.

Fiscal deficit- is a shortfall in a government's income compared with its spending

Foreign aid- refers to any type of assistance that one country voluntarily transfers to

another, which can take the form of a gift, grant, or loan.

Dual exchange rate regime- is a setup created by a government where their currency has a

fixed official exchange rate and a separate floating rate applied to specified goods, sectors, or

trading conditions.

Economic growth rate- is the percentage change in the value of all of the goods and services

produced in a nation during a specific period of time, as compared to an earlier period.

Real GDP- is a macroeconomic statistic that measures the value of the goods and services

produced by an economy in a specific period, adjusted for inflation.

GDP deflator- shows how much a change in GDP relies on changes in the price level.

AD-AS framework- (aggregate demand-aggregate supply) model is a way of illustrating

national income determination and changes in the price level.

Dynamic adjustment- refers to the way in which the system transitions to a new steady state

when there are changes in determining variables.

x
Stagflation- is a combination of high inflation and economic stagnation. Inflation drives

prices up but purchasing power down.

Spline functions- is a piecewise continuous function with a specified degree of continuity

imposed on its derivatives

FDI inflows and outflows- net inflows are the value of inward direct investment made by

non-resident investors in the reporting economy. FDI net outflows are the value of outward

direct investment made by the residents of the reporting economy to external economies.

xi
 ABSTRACT

Researchers and decision-makers alike have shown interest in the study on the relationship
between economic growth and inflation. The main goal of the majority of policy makers is to
achieve high and sustained economic growth with low and stable inflation. This study's main
goal is to identify the nature of the relationship between Kenya's inflation and economic
growth. Maintaining strong economic growth is one of any nation's top priorities. The focus
of this paper is only inflation, despite the fact that there are other important factors that
influence economic growth. It is debatable whether inflation and economic growth are
related. The investigation of the connection between inflation and economic growth is the
first objective of this study. To analyse the data, the model is formed by taking economic
growth as dependent variable and inflation as the independent variable. Secondary data from
1990 to 2021 was used in this study. The data was collected from IMF data portal, CBK
website, KNBS website as well as from World bank data portal. Data collected was analysed
by use of descriptive and inferential statistics. Excel software was used for this analysis. The
inferential statistical techniques that were applied included Pearson’s correlation and
regression analysis which were used to draw a causal relationship between inflation and
economic growth. The regression results indicate a negative relationship between inflation
and economic growth. The study concludes that an increase in inflation rates leads to slowed
economic growth. The researcher concludes that monetary and fiscal policies should be
enacted to ensure that inflation is maintained at CBK recommended rate.

xii
 CHAPTER ONE

INTRODUCTION

The chapter will look at the background of the study, statement of the problem and purpose

of the study. The researcher will also look at the research objectives, research questions and

significance of the study. The researcher will finally highlight on the scope and limitations of

the study.

1.1 Background of the study

Most nations aim to achieve rapid economic growth that is sustainable. Due to a number of

variables that have an impact on economic growth, achieving this goal has proven

challenging. Inflation is one of many factors that can be said to determine economic growth

(Ndung'u, 2018). The World Bank (2007) defines inflation rate as "an annual increase in the

price of goods and services that are purchased by consumers in an economy," whereas the

London Economic Dictionary defines inflation as "the consistent tendency for nominal prices

to increase which leads to a decline in the purchasing power of a country's currency (Scott &

Marshall, 2009). Generally, based on the definitions, inflation refers to increase in prices of

basic commodities. Contrarily, the continuous decrease in price of basic commodities is

referred to as deflation.

The main goal of macroeconomic policies in the majority of nations of the world is still to

achieve sustainable economic development along with price stability. In conducting monetary

policy, price stability is prioritized among other things in order to support sustained economic

growth and increase the purchasing power of local currency. Recent months have seen a lot

of discussion among macroeconomists and policymakers over whether or not inflation is

harmful to economic growth.

1
Numerous studies have revealed a conflict between inflation and economic expansion.

Amitrano & Vasconcelos (2019) investigates the matter and discovers, while holding

constant variables like the fertility rate and education that there is a negative correlation

between inflation and economic growth. The negative relationship between inflation and

economic growth was also explained by Hossain, (2015). Economic growth rate is dependent

on the rate of return, but rate of return is lowered by inflation, hence economic growth is

negatively correlated with inflation.

Kenya has had rapid economic growth for more than a decade, but inflation, which was

formerly believed to be under control, is now a significant problem. Inflation in Kenya

reached its greatest level ever in 1993, when it was 46% (Durevall & Ndung'u, 2001). Several

factors accounted for the high inflation. The factors include, surplus of money, a lack of

aggregate demand, the depreciation of the Kenyan shilling, and low investor confidence as a

result of the turmoil surrounding the switch to diverse political systems. A few studies,

including those conducted in Tanzania have already looked into whether there is a

relationship between inflation and economic growth as noted by Kasidi & Mwakanemela

(2013). This connection between inflation and economic growth represents a case of many

developing economies in Africa.

1.2 Inflation Dynamics in Kenya

Following Kenya's independence, the first ten years were characterized by macroeconomic

stability, with an exchange rate that was set and an average inflation rate of 3%. The rate of

inflation started to rise in the 1970s with the onset of the first oil price shocks and issues with

the balance of payments. Along with this increase, there were devaluations and exchange rate

swings. A notable turn of events in the 1990s included a slowdown in economic growth, a

sharp increase in inflation, money growth, and interest rates, as well as a sharp decline in the

2
value of the shilling (Mueller, 2008). The prohibition on foreign aid at the time, rising fiscal

deficits supported by money printing, and the switch to a dual exchange rate regime with a

parallel market were the main causes of the sudden growth in the money supply.

The economy's growth rate did not follow a consistent or predictable trend over the 15-year

period from 1995 to 2010. The real economic growth rate was 4.4 percent in 1995 and 4.1

percent in 1996. The growth rate did, however, drastically decline in 1997, falling to a pitiful

0.47. In 2004 and 2007, the growth rate increased to 5.1043 percent and 6.8507 percent,

respectively. The 2008 PEV had a negative effect to the economy as it led to closure of many

economic activities. It went down to 0. 2 but then recovered. The economy performed well

until the onset of COVID-19 in 2020 which affected the economy significantly and led to

negative economic growth. A graph of inflation and economic growth from 1990 to 2021 is

shown below.

A graph of Economic growth and inflation rate in

Kenya from 1990-2021

50
40
30
20
10
Rate

0
-10 0
9 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
/ 19 /19 /19 /19 /19 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

Years

Economic growth Inflation Rate

3
1.2 Measuring Inflation in Kenya

The Consumer Price Index (CPI), the Wholesale Price Index (WPI), and the GDP deflator are

the three basic ways to measure inflation. Inflation is simple to identify but challenging to

quantify, and the choice of measuring method is impacted by the information available,

claims (Gülşen & Kara, 2019). Kenya adopted the use of CPI in 1961 and has since regarded

it as the most useful metric.

The Industrial Court specifically uses it to establish the maximum wage increases allowed by

the Government Wage Guidelines, which include fixed escalators (for unionized employees)

based on the cost of living. Macroeconomic policies are created using the CPI as a measure

of inflation. Because of the anticipated link between the CPI and the GDP deflator,

underestimating inflation as measured by the CPI will also result in underestimating inflation

as measured by the GDP deflator, which will overstate the actual rate of growth and per

capita growth.

1.3 Statement of the problem

Although the primary goals of Kenya's macroeconomic policies are to foster economic

growth and maintain low levels of inflation, the connection between inflation and economic

growth has been the subject of intense discussion in recent years. The complexity of the

problem has been illustrated by earlier studies on the relationship between inflation and

economic growth. They demonstrate that depending on many factors, there may be no

relationship, a negative association, or a positive relationship between inflation and economic

growth.

The majority of empirical studies confirm a negative correlation between inflation and

economic growth, particularly when inflation rises above a certain threshold. However, there

is a noticeable difference in opinion regarding low or moderate inflation. Some studies

4
demonstrate no association, while others show a statistically significant positive correlation

between inflation and economic growth. In terms of causal direction, there are two opposing

viewpoints. One thinks inflation might promote growth while others contend that inflation

may result from growth (Anari & Kolari, 2016). Additionally, Van, (2019). suggests that the

correlation between inflation and economic growth is only a short-term phenomenon. Other

researchers also provide evidence, however, that inflation and growth have a long-term

positive relationship.

While some scholars, particularly those who support the structural and Keynesian

perspectives, tend to hold this view, others, notably those who support monetarist viewpoints,

contend that inflation is detrimental to economic progress. According to some research, there

is a significant short-run association but not a long-run one (Jumuno et al., 2021). This study

examined how inflation affected Kenya's economic growth in light of the current economic

controversy.

1.4. Research Objectives

This study aims at achieving the following;

1) To investigate the relationship between inflation and economic growth.

2) To evaluate how responsive the Kenyan economy has been to changes in the general level

of prices.

1.5 Research Questions

1) Is there a significant relationship between inflation and economic growth?

2) How does the economic growth respond to various changes in the general level of prices?

5
1.6 Justification of the Study

Understanding how responsive the GDP is to changes in the general price level is critical for

policymakers, macroeconomists, and financial analysts, who will benefit much from this

study. By doing this, they are able to create pertinent rules that will maintain prices at a level

that encourages and supports production. There is still much debate over the relationship

between inflation and economic growth, so policymakers must dispel any lingering

uncertainty. Numerous empirical research supports the existence of either a positive or

negative relationship between these two macroeconomic variables. Several empirical studies

support the existence of either a positive or negative relationship between these two

macroeconomic variables.

1.7 Scope and Limitations of the Study

The study sought to assess the relationship between inflation and economic growth in Kenya,

the period 1990 to 2021. Reason being, the period was long enough to capture that

relationship due to dynamics in economy over the period. Further, it was possible to capture

the effect of inflation on economic growth. The assessment was done using secondary data

from IMF data portal among other websites and publications.

Limitations of the study were also observed in relation to the secondary data accessed and

used. It was challenging making historical comparisons as the manner in which key study

variables were measured changed over time. Some of the documents lacked authenticity and

it was difficult to verify how the analysis was done; meaning checking whether it was biased

or not was really a challenged. Furthermore, slight differences in data from different sources

was also a concern as the analysis yielded slightly different results when data analysis was

performed.

6
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This section reviewed the theoretical and empirical literatures. The theories on economic

growth and inflation such as Classical Growth Theory, Keynesian Theory, Money &

Monetarism, Neoclassical Theory and Neo-Keynesian are presented first followed by

empirical literature review from different authors before finalizing with the hypothesis of the

study.

2.2 Theoretical Literature Review

In order for a country's economy to thrive, classical economics, which is based on supply-

side theories, emphasizes the necessity for incentives to save and invest. These models of

economic growth are where the theoretical foundations of inflation-growth dynamics have its

roots. The AD-AS framework, a more complete model for tying inflation to growth, is

provided by Keynesian theory.

While Neoclassical and Endogenous Growth theories attempted to account for the effects of

inflation on growth through its impact on investment and capital accumulation, Monetarism

reemphasized the crucial role of monetary growth in determining inflation (Vergnhanini &

De Conti 2017). Below is a full description of each growth model in regard to the inflation-

growth relationship.

2.2.1 Classical Theory

Many growth theories have their roots in classical theorists. Adam Smith proposed a growth

model that was driven by the supply side of the economy, and his production function was as

follows:

7
Y=f (L, K, T)

Where

Y is output

L is labour

K is capital

T is land

The above model indicate that output was correlated with inputs of labour, capital, and land.

Consequently, output growth (gy) was driven by population growth (gL), investment (gK)

and land growth (gT) and increases in overall productivity (gf). Therefore: gy = (gf, gK, gL,

gT)

Smith claimed that because growth shows growing returns to scale, it is self-reinforcing. He

also believed that saving spurred investment, which in turn led to growth. Therefore, he

believed that one of the key factors influencing how quickly (or slowly) a country would

grow was the distribution of income (Foss, 1997) Additionally, he asserted that profits fall

not as a result of declining marginal productivity but rather as a result of increased wage

competition among business owners. The relationship between changes in price levels

(inflation) and their "tax" impacts on output and profit levels was not explicitly stated in

traditional growth theories. However, the fall in the profit levels of the enterprises due to

greater worker expenses suggests that the link between the two variables is implicitly

negative.

8
2.2.2 Keynesian Theory

The aggregate supply and demand curves in the traditional Keynesian model serve as an

effective illustration of the relationship between inflation and growth. This model predicts

that the (AS) curve's crucial characteristic, that it is upward sloping rather than vertical—

occurs in the short run. When the AS curve is vertical, changes in the economy's demand side

have no impact on anything other than prices. Changes in AD, however, have an impact on

prices and output if it slopes higher (Hayes, 2008). This is consistent with the reality that a

variety of factors influence the short-term inflation rate and output level. These include

adjustments to the labour force, expectations, prices of other production components, and

fiscal or monetary policy.

Moving from the hypothetical short run to the long run is thought to balance out the

aforementioned factors and their "shock" on the "steady state" of the economy. The short-run

AD and AS curves "dynamic adjustment" produces an "adjustment path" that initially shows

a positive relationship between inflation and growth but shifts to a negative relationship

toward the end of the adjustment path. The initial correlation between inflation and economic

growth is favourable because of the time consistency issue.

Inflation and growth often have a negative relationship, as evidenced by empirical literature,

and this link is essential to understand. Stagflation occurs when inflation increases while

output decreases or stays constant. Second, the economy takes a transitional route where

inflation rises then declines rather than moving straight to a higher inflation rate (Mankiw,

1995). According to this model, there is no long-term trade-off between output and inflation,

but there is a trade-off in the short run between output and the change in inflation. Production

must be equal to the natural rate (Y*) in order to keep inflation constant at any level. Any

degree of inflation is manageable, but for inflation to decrease, there must be a stretch of time

where output is lower than the natural rate.

9
2.2.3 Monetarism

With its emphasis on the long-run supply-side characteristics of the economy rather than the

short run dynamics, monetary theory has several key characteristics. The founder of the term

"Monetarism," Milton Friedman, placed a strong emphasis on a number of essential long-

term characteristics of the economy, such as the Quantity Theory of Money and the

Neutrality of Money (Friedman, 1983). By simply matching the total amount of economic

spending to the total amount of money in circulation, the Quantity Theory of Money related

inflation and economic growth.

According to Friedman, inflation results from a rise in the quantity or velocity of money that

is faster than the rate of economic growth. Friedman disputed the Phillips Curve theory as

well. His thesis was based on the idea that in such an economy, everything would cost twice

as much (Bernanke, 2003). Because their incomes are also twice as great, people don't mind

paying twice as much for products and services.

People plan for future inflation rates and take those effects into account while acting. As a

result, output and employment are unaffected. This idea is known as the neutrality of money

among economists. If the equilibrium values of real variables, like the amount of GDP, are

unaffected by the size of the money supply over the long run, then there is neutrality. If

inflation is operated in this manner, it would not be harmful to the economy.

However, inflation actually has noticeable effects on other macroeconomic factors. The rate

of inflation can have a negative effect on a nation's growth rate through its effects on capital

formation, investment, and exports. In summary, monetary theory contends that growth in

money has a greater long-term impact on prices than increase in growth itself. Inflation will

occur if the money supply is expanding faster than the economy.

10
2.2.4 Neo-classical Theory

This model showed diminishing returns to capital and labour separately and constant returns

to both factors jointly. Investment was replaced by technological change as the primary factor

explaining long term growth. Its level was assumed by Solow and other growth theorists to be

determined exogenously, meaning independently of all other factors including inflation

One of the first to propose a mechanism connecting inflation and production growth distinct

from the excess demand for commodities was Mundell (1963). According to his concept, a

rise in inflation or inflation expectations causes a sharp decline in people's wealth. This

operates under the assumption that people's real money holdings have decreased their rate of

return (Meade, 2013). In order to build the required wealth, people save more by investing in

assets, which raises their price and lowers the actual interest rate.

Saving more money results in faster capital accumulation and faster economic growth. There

are proponents of this idea who argue that there is no connection between inflation and

economic growth. According to Sidrauski, (1967), steady capital stock and economic growth

are unaffected by rising inflation rates. In general, neo classical growth theory's theoretical

analysis of the link between inflation and economic growth yields contradictory findings.

2.2.5 Neo-Keynesian Theory

Ideas of the Keynesians lead to the emergence of the Neo-Keynesians. Under Neo-Keynesian

one of the major developments was the concept of 'potential output', which is also referred to

as natural output. Given institutional and environmental constraints, this is the output level at

which the economy is operating at its highest level of productivity (Benassy,1975).

Additionally, this level of output is in line with the natural rate of unemployment, often

known as the non-accelerating inflation rate of unemployment (NAIRU).

11
The unemployment rate at which inflation is neither increasing nor decreasing is known as

NAIRU. With this concept, the "built-in inflation rate" is decided endogenously, or by how

the economy typically operates. This hypothesis contends that inflation is influenced by both

the GDP level and the natural rate of employment. All other things being equal, when GDP is

above potential and unemployment is below the natural rate of unemployment, inflation will

increase as suppliers raise their prices and internal inflation deteriorates. As a result, there is a

stagflationary shift in the Philips curve, leading to higher unemployment and inflation.

Holding all other variables constant, if the GDP is below its potential level and the

unemployment rate exceeds the natural rate of unemployment, inflation will slow as suppliers

try to fill excess capacity, lowering prices and undermining inherent inflation, resulting in

disinflation. As a result, the Phillips curve moves in the desired direction, away from higher

inflation and higher unemployment, and becomes flatter.

As long as there are no supply shocks, the inflation rate will remain unchanged if GDP is

equal to its potential and the unemployment rate is equal to NAIRU. Neo Keynesians believe

that the Phillips curve is vertical in the long run (Rudd & Whelan, 2005). In other words, the

unemployment rate is predetermined and equal to the natural rate of unemployment, although

a wide range of inflation rates are attainable at that rate. The fact that the precise level of

potential output and the natural rate of unemployment are often unknown and have a

tendency to change over time is a challenge for this theory. Because of the downward price

rigidity, inflation also has a propensity to act in an asymmetric manner, rising more quickly

than it declines.

2.2.6 Endogenous Growth Theory

In this theory, economic growth is generated by factors within production process. The model

assumes that technological progress is endogenous with this assumption being contrary to neo

12
classical growth theory (Aghion et al., 1998). Neoclassical economies and endogenous

growth models vary further in that endogenous growth theory implies that the marginal

product of capital is constant, whereas neoclassical growth theory assumes that capital is

diminishing on return. In the endogenous growth theory, the rate of return on capital, such as

human and physical capital, determines the growth rate.

2.3 Empirical Literature

To factor in the causes of economic growth, several researchers. used growth accounting. By

combining empirical data with the growth accounting method, Szostak, (2009). advances the

subject. He determines the Solow residuals and does regressions for economic growth, along

with the other 15 components of economic growth (such as the growth of capital

accumulation, residual productivity, and so on) depending on inflation. The findings of his

analysis indicate that capital accumulation as well as total factor productivity might have an

impact on economic growth. Although Fischer concludes that there is a negative correlation

between inflation and economic growth, he cautions that there is no direct evidence to

support the low inflation-high economic growth pattern, indicating that low inflation is not a

necessary condition for economic growth.

Many empirical research back up this claim that high inflation is detrimental to the economy.

However, only a small number of studies demonstrate a causal relationship between lower

inflation and higher growth. Theoretical models have demonstrated that capital accumulation

and economic growth go in the same direction. On the impact of inflation on capital

accumulation, there is some debate (Sahnoun & Abdennadher, 2019). If the monetary

economy is used to study the inflation-investment link, as was discussed in the theory part, it

will depend on how real money balances and investment are related. Additionally, according

13
to Fischer, inflation will hurt investment. Inflation, he contends, disrupts the pricing system,

which in turn affects the effectiveness of resource allocation through distorting price levels.

Finally, this influence will have a detrimental impact on economic growth. The idea that

inflation will hinder growth by decreasing the effectiveness of resource allocation is further

supported by (Adeniyi, 2020). He creates a model to further explain how inflation will affect

the return on money and capital, which will then affect the decisions made by businesses and

consumers. The initial effective resource allocation has been distorted by these changes,

which also influence the effectiveness of the price system.

Studies have shown that the relationship's complexity may play a role in the nonlinear effect.

Since the 1990s, non-linearity has received a lot of attention in research on the connection

between inflation and economic growth (Yemba et al., 2020). Fischer (1993) was the first to

use spline functions to demonstrate non-linearity. The spline functions estimate the results by

assembling the data of inflation into three ranges according to the level of inflation.

Fisher’s study also shows that there are more than one break points between inflation and

economic growth and the negative coefficients of inflation-economic growth relationship is

decreasing quicker when inflation is higher. Hassan & Meyer, (2020) further the study of

non-linearity in inflation- economic growth relationship and argue that levels of break points

should be different and distinguished in estimation between developed and developing

countries. They find a higher threshold with 8% for developed countries and a lower one with

3% for developing countries.

2.4 Overview of Literature

This chapter started by looking at the theoretical framework where it discussed the theories

on which the study is based on. The Classical theory showed that output was correlated with

14
inputs. Keynesian theory indicated the relationship between inflation as a result of aggregate

demand and supply. The theory also ascertains that a variety of factors influences the short

term inflation and input level.

Monetarist economists emphasized a long run supply side characteristics of the economy and

puts emphasis on a number of essential long-term characteristics of the economy such as

quantity of money. Neo-classical economists on the other hand based their argument on

diminishing returns of capital and labour and also constant returns to labour and capital as

well.

From the empirical study conducted, many economic scholars agreed that inflation is

inversely proportional to economic growth. The studies identified both inferential and

descriptive statistics. Inflation and economic growth rate were used as the variables. Some

studies were done in different economies which have diverse working or operating

environments from that in Kenya. Further, most studies used data that covered short periods

and thus making their findings inconclusive and difficult to generalize. These included

studies by Nantob, (2015). Therefore, the current study seeks to add new value by filling

these research gaps in an efficient manner.

15
 CHAPTER THREE

METHODOLOGY

3.1 Introduction

This part introduces the methodology and the model specifications of this study. The specific

sections contained therein are the research design, conceptual framework, model

specification, description and definition of measurement, data types and sources and finally,

data processing and analysis. The section explains how to examine the relationship between

inflation and economic growth. Data on inflation and economic growth from 1990 to 2021 is

used in this study where economic growth is used as the dependent variable while inflation

rate as the independent variable.

3.2 Research Design

Research design involves planning and conducting a study. The techniques and procedures

used to address the research problem are also identified in this chapter. Descriptive and

inferential research design was adopted for this study. According to Mugenda (2003),

descriptive statistics refers to a systematic, empirical inquiry whereby the researcher lacks

direct control of the independent variable since they are already manifested and cannot be

manipulated. This design refers to the process through which data is collected in testing

hypotheses or answering questions relating to the current status of the study subject.

The inferential design was found more appropriate since the study’s objective was to provide

a clear association concerning the relation between inflation and economic growth in Kenya.

Thus, it would enable the researcher to get information, analyse, present data and deduce its

meaning for the explanation purposes. Inferential design is adopted when a researcher wants

to draw conclusions about a population based on data from a sample

16
3.3 Conceptual Framework

A conceptual framework is a structure which the researcher believes can best explain the

natural progression of the phenomenon to be studied (Camp, 2001). It’s simply a

diagrammatical representation of the suggested interconnection of the independent and

dependent variables.

Independent variable Dependent variable

Inflation Economic growth

Control variables

Fiscal policies

Monetary policies

Figure 3.1: Conceptual Framework

Source: Researcher (2022)

3.4 Model specification

The researcher conducted a simple regression analysis where the following regression model

was used

Y=B0 +B1X+U

Where

Y=Economic growth

X= Inflation rate

B0=Constant term

BI=Slope coefficient

17
U=Error term

3.5 Description and Measurement of Variable

Secondary data from different publications and websites, local and international were used in

this data. Data from 1990 when there were a lot of economic uncertainties to 2021 was used.

3.6 Data Types and Sources

In order to achieve the objectives of this study, comprehensive data has to be obtained and

from reliable sources. Data, mainly secondary was obtained from different publications and

websites of different organizations such as CBK and World Bank. The data on inflation rate

is an average of monthly inflation data released by CBK while economic growth is a change

in GDP over a period of time. KNBS releases this data to the public yearly. Brydges, (2019)

states that data chosen for research should be a true representative of the economy. It is for

this reason that the duration between 1990 and 2021 is chosen as it is in this period that the

economy of Kenya has had booms and recession due to political and other global factors.

3.7 Data Processing and Analysis

Data analysis is a method used to make observations and conclusions from data collected by

means of a systematic and objective identification of specific characteristics. Economic

growth rate was measured to show how it is affected by inflation and deflation. This was

done by use of inferential and descriptive statistics. Descriptive statistics included trend

analysis over the period from 1990 to 2021for the variables under study. Inferential

techniques that were applied included regression and correlation analysis.

Pearson’s correlation technique was used to assess the association and strength between the

variables. Regression analysis was used to assess the fitness of the model(R-square), analysis

of variance (ANOVA) and regression of coefficients. The fitness of the model explained the

18
extent to which independent variable explain economic growth. ANOVA explained the

overall significance of the model using the 0.05-conventional level of significance. The

simple regression analysis helped in establishing the regression line, given the variables. All

this analysis was done using Excel software.

19
 CHAPTER FOUR

DATA ANALYSIS, FINDINGS, PRESENTATION AND DISCUSSION

4.1 Introduction

This chapter deals with the interpretation, presentation of the analysed data and findings. It

presents analysis of the data to determine the effect of inflation on economic growth. Section

4.2 looks at descriptive statistics while section 4.3 analyses the regression model and finally

section 4.4 provides the discussion of the findings.

4.2 Descriptive Statistics

Table 4.1: Descriptive Statistics

Economic growth Inflation

Mean 3.618359375 Mean 11.42623

1.654895
Standard Error 0.412884448 Standard Error
9.0491
Median 3.9924 Median
9.3615
Standard Deviation 2.335627144 Standard Deviation
87.63768
Sample variance 5.455154153 Sample variance
5.190466
Kurtosis -0.669405617 Kurtosis
2.118334
Skewness -0.21049595 Skewness
44.4246
Range 8.858 Range
1.5543
Minimum -0.7995 Minimum
45.9789
Maximum 8.0585 Maximum
365.6394
Sum 115.7875 Sum
32
Count 32 Count
Source: Researcher, 2022

20
4.2.1 Economic Growth

The researcher sought to investigate descriptive statistics for the period from 1990 to 2021.

The analysis on excel software revealed that the highest growth of Kenyan economy recorded

was in 2010 where economic growth was 8.0585. This was due to the passing of the new

constitution, which ensured strong macroeconomic policies, and a favourable regional

environment. This created a new positive economic momentum (Osamwonyi & Kasimu,

2013). The least economic growth rate recorded was in 2020 where economic growth was

recorded as -0.7995 which can be termed as a recession. The poor performance in economy

was due to the emergence of COVID-19 which led to closure of many economic activities.

The average economic growth rate as per the analysis was 3.618359375 with a measure of

deviation (standard deviation) being 2.335627144.

4.2.2 Inflation Rate

The researcher sought to assess descriptive statistics for the annually rates of inflation and

economic growth from 1990 to 2021. From the results obtained, the highest inflation rates

recorded in Kenya was in 1993 during the fight for multiparty democracy (Passarelli &

Tabellini, 2017) The rate was as high as 45.9789. The lowest level of inflation recorded in the

period was 1.5543 in 1995 due to Monetary and fiscal mechanisms were imposed in Kenya to

ensure a steady and stable inflation rates. According to Kanyi and Kalui, (2014), tightening of

monetary policy, through sales of treasury bills, thus increases the reserve requirement. The

arithmetic mean for the inflation rate is 11.42623 with a measure of dispersion from the mean

being 9.3615 units.

21
4.3 Inferential Analysis

4.3.1 Pearson’s Correlation Analysis

Pearson’s correlation shows the relationship that exist between the two set of variables.

Pearson’s correlation thus shows the measure of linear correlation between two sets of data. It

ranges from 1 to -1 with 1 showing strong positive association and -1 showing strong

negative association. Zero shows absence of correlation between two variables. Simply

stated, the closer the association inclines to zero, the weaker it becomes.

Table 4.2: Pearson’s Correlation Table

Economic growth Inflation

Economic growth 1

Inflation -0.441902831 1

**Correlation is significant at 0.0113

Source: Researcher, 2021

The association between economic growth and inflation rate was moderate-negative

correlation (-0.4419) and was statistically significant (0.0113).

4.3.2 Regression Analysis

In this study, the researcher carried out simple regression analysis to establish the precise

relationship between economic growth and inflation rate. The results of the model summary,

analysis of variance (ANOVA) and regression coefficients are indicated in the subsequent

sections.

22
4.3.2.1 Model Summary

The findings of coefficient of correlation R and coefficient of adjusted determination R 2 were

as shown in table 4.3

Table 4.3: Regression Statistics

Multiple R 0.441902831

R Square 0.195278112

Adjusted R square 0.168454049

Standard error 2.129838339

Observations 32

Source: Researcher (2021)

The findings indicate that that the coefficient R was 0.4419, an indication of moderation

relationship between variables. The study findings show that the independent variable;

inflation rates explain economic growth though not satisfactorily. The moderate relationship

was backed by a lower R square value of 0.1952 as well as a lower adjusted R square of

0.16845. The adjusted R square value of 16.845% implies that changes in inflation rates

explains the economic growth. The residual of 83.155% explained factors beyond the scope

of the current study, that affect the degree of economic growth in Kenya.

4.3.2.2 Analysis of Variance (ANOVA)

An ANOVA was conducted at 95% significant level. A comparison of F-calculated and F-

critical was done. The findings were shown in table 4.4

Table 4.4: Analysis of Variance

Df SS MS F Significance F
Regression 1 33.02343829 33.02343829 7.279960247 0.011335096
Residual 30 136.0863405 4.536211349
Total 31 169.1097788
Source: Researcher (2022)

23
The findings show that F-calculated was 7.279960247 and the F-critical is 1.82. This

therefore meant that the F-calculated > F-critical, an indication that the overall regression

model was significant for the study. This was backed by a probability (P) value of

0.011335096, which was lower than the set conventional probability of 0.05-significance

level and thus becoming of much importance in the research. These findings indicated that

inflation is a microeconomic issue as stated by Sahnoun and Abdennadher, (2019) and thus

has an effect to economic growth in Kenya. Thus there is need for inflation to be regulated.

4.3.2.3 Regression Coefficient

So as to establish the influence of inflation on economic growth, the study conducted

regression analysis. The findings were as shown in table 4.5

Table 4.5: Regression Coefficient

Coefficients Standard t Stat P-value Lower 95% Upper 95%
Error

Intercep 4.878119544 0.599793054 8.133004395 4.44506E-09 3.65317871 6.103060377

t

Inflation - 0.04086207 - 0.01133509 - -

Rate 0.110251591 2.698140146 6 0.19370307 0.026800111

Source: Researcher (2022)

From the above analysis, an economic model will be formulated

Y= 4.878119544 -0.110251591X

Where

Y= Degree of economic growth with respect to inflation rates

X= Influence of inflation rate on economic growth

24
The regression equation established that when X is constant, economic growth will stand at

4.878119544. The results also showed a negative coefficient of inflation rate indicating the

negative relationship between inflation and economic growth.

4.4 Discussion of Findings

From the regression model obtained above, it is evident that economic growth and inflation

rate are inversely proportional. The study found that inflation rate influenced economic

growth rate. The study was found to be in line with Anari and Kolari, (2016) who noted that

an increase in inflation rate lead to slowed economic growth. The coefficient of the

independent variable (inflation) was -0.110251591 an indication of the negative relationship

as noted by Adeniyi, (2020). in the empirical study.

The study results indicated that inflation rate was at its highest level in 1995 when the rate

was 45.9789 while it was lowest in 1995 at a rate of 1.5543. The average inflation rate of

Kenya as identified by researcher is 11.42623. However, according to Saungweme, (2021).

the inflation rate of Kenya within the period has been operating at CBK recommended rate

and rarely does it surpass the 5±2.5 percent.

The economic growth of Kenya, averaged 3.618359375 for the 32 years in this study.

Although rarely has the Kenyan economic growth been in a recession except in 2020, this

study shows that it is operating below the government target of 10% as envisaged in vision

2030. The study produced a low adjusted R square figure of 0.168454049 implying that there

are so many factors that affect the economy other than inflation rate as stated by Nakagawa,

(2017). However, the study has some gaps as identified by researcher. This is evident as in

some years such as in 2020, inflation rate was 5.4048 thus stable as required by central bank

of Kenya. Contrary to our expectation, it is in this year that the economic growth was at its

lowest.

25
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS

5.1 Introduction

This chapter includes the summary (section 5.2) showing the findings in line with the

objectives of the study. The chapter also includes the conclusions in section 5.3, contribution

to knowledge in section 5.4, policy implications in section 5.5 and lastly, areas of further

research in section 5.6.

5.2 Summary of Findings

The primary goal of this study was to investigate how inflation affects economic growth in

Kenya. The data used were annual time-series data covering the years 1990 through 2021.

Descriptive and inferential statistics were used for the two sets of variables. According to the

findings of the regression study, Kenya's economic growth is negatively impacted by

inflation. Quartey, (2010) discovered the same outcomes in Ghana. These outcomes are

similar with those of earlier research, including (Ahmed & Chimobi, 2010).

In order to mitigate this negative effect of inflation, the government of Kenya came up with

fiscal policies such as regulation of government expenditure and taxation. CBK introduced

monetary policies such as raising interest rates, regulation on money supply, and open market

operation (OMO). Despite the efforts made, the economic growth is not as envisaged due to

factors such as political unrests, unexpected crises such as COVID-19.

The objective of the study was, (i) to investigate the relationship between inflation and

economic expansion; (ii) to evaluate how responsive the Kenyan economy has been to

changes in the general level of prices. In accomplishing the first objective, the correlation

results between inflation and economic growth was moderate- negative and statistically

26
significant. Further, regression results indicated that an increase in inflation rate by one unit

led to a 0.110251591 decrease in economic growth.

The regression and ANOVA results show that the independent variable was significant in

explaining the economic growth. To accomplish the second objective, the researcher analysed

the data to show how a unit change in inflation led to change in economic growth. The results

indicated a negative response of 0.441902831 from economic growth.

5.2 Conclusions

As per the above findings, this study concluded that inflation has a negative effect on the

economic growth. The study also indicated that inflation was statistically significant in

explaining economic growth in Kenya. It can also be concluded that understanding the impact

of inflation on economic growth is very critical to the ministry of Treasury and planning.

Through this data, the ministry is able to allocate resources efficiently to different sectors of

the economy. It was noted by the researcher that there exists other factors such as interest

rates, money supply, and economic environment that affects the rate of economic growth.

5.3 Contribution to Knowledge

This study contributes to the available literature on the impact of inflation on economic

growth in Kenya. The reliability of this research is due to its use of the latest data uploaded

on websites of different organizations. The study also captured the impacts of COVID-19 to

the economy and as shown in the trend line, the impact was extreme. The study was able to

come up with policy implications that can cut across the entire economy.

Previous studies were more concerned on a short period such as five years thus limiting the

number of variables. This study used a large dataset of 32 years as this will factor in many

years and the inflation implications to the economy. Ministry of planning and other entities

27
involved in sectoral or regional planning use this data. This data enables them understand

how the current inflation rates will have an impact on their specific objectives. Through this

research, scholars will have an additional data for referencing.

5.4 Policy Implications

According to the study's findings, Kenya's ability to sustain economic growth has been

hampered by an increase in the general price level. These findings have significant policy

consequences for both domestic policy makers and development partners because controlling

inflation is a prerequisite for fostering economic growth. The primary goal of policymakers

should be to keep inflation at a low level.

The stability of the inflation rate must be maintained. This would imply that any change in a

nation's overall pricing level has a significance effect on economic expansion. In this regard,

the study came to the conclusion that all issues, such as the energy crisis, exchange rate

volatility, rise in money supply, poor agricultural production, and so on, should be addressed

in order to prevent an increase in the general price levels.

Increasing agricultural production may be accomplished by increasing labour availability,

enhancing infrastructure, providing training to farmers, and implementing tactics including

the creation of long-term markets for their goods. The rate of inflation is a crucial

macroeconomic factor. This suggests to policymakers that even though there are other factors

that affect economic growth, such as FDI inflows and outflows, human capital, investment,

technological advancement, financial systems, as well as government policies, inflation is

also key in the economy (Hussain, 2011; Kasidi, 2010). In order to achieve and maintain

strong economic growth (GDP), Kenyan policymakers should work to keep the inflation rate

at as low as possible.

28
5.5 Areas for Further Research

This section addresses the case that this study is not exhaustive in nature and in context and

as such there is need for further research to be undertaken. This can be done by inclusion of

other independent macroeconomic variables into the model. This is important since it is not

practically possible for economic growth to be affected by only one variable. Using the same

variables, a study with bigger geographical scope can be conducted. For example, inflation

rates in East Africa to enable inter-country comparison.

Unlike the study done in Kenya which is considered a medium income economy by World

Bank, another study can be done in low income countries to ascertain the responsiveness of

economic growth to inflation. Its context can further be narrowed to a sector level or specific

subsection of the economy, such as the manufacturing sector. This will also enable inter-

sectoral comparison and ensure optimal and efficient allocation of resources to the different

sectors.

29
 REFERENCES

Adeniyi, F. O. (2020). Impact of foreign direct investment and inflation on economic growth
of five randomly selected Countries in Africa. Journal of Economics and
International Finance, 12(2), 65-73. https://academicjournals.org/journal/JEIF/article-
full-text-pdf/F975B8B63469.

Aghion, P., Howitt, P., Howitt, P. W., Brant-Collett, M., & García-Peñalosa, C.
(1998). Endogenous growth theory. MIT press.
https://books.google.com/books?
hl=en&lr=&id=tLuqjIVJUcoC&oi=fnd&pg=PA1&dq=endogenous+growth+theory&
ots=myKX-tTk5P&sig=hlBOVlb5nA4_Su30oSWCW5gyv-4

Amitrano, C. R., & Vasconcelos, L. (2019). Income distribution, inflation and economic
growth: A post-keynesian approach. Panoeconomicus, 66(3), 277-306.
http://www.panoeconomicus.org/index.php/jorunal/article/view/845

Anari, A., & Kolari, J. (2016). Dynamics of interest and inflation rates. Journal of Empirical
Finance, 39, 129-144.

https://www.sciencedirect.com/science/article/pii/S0927539816301104

Benassy, J. P. (1975). Neo-Keynesian disequilibrium theory in a monetary economy. The

Review of Economic Studies, 42(4), 503-523. https://www.jstor.org/stable/2296791

Bernanke, B. S. (2003). Friedman’s monetary framework: Some lessons. Proceedings,

Federal Reserve Bank of Dallas, Oct, 207-214.

https://www.dallasfed.org/~/media/documents/research/pubs/ftc/ftc.pdf#page=204

Brydges, C. R. (2019). Effect size guidelines, sample size calculations, and statistical power
in gerontology. Innovation in aging, 3(4), igz036.
https://academic.oup.com/innovateage/article-abstract/3/4/igz036/5560156

Durevall, D., & Ndung'u, N. S. (2001). A dynamic model of inflation of Kenya, 1974-
96. Journal of African Economies, 10(1), 92-125.

30
Foss, N. J. (1997). The classical theory of production and the capabilities view of the
firm. Journal of Economic Studies, 24(5), 307-323.
https://www.emerald.com/insight/content/doi/10.1108/01443589710175825/full/html

Friedman, M. (1983). Monetarism in Rhetoric and in Practice. Bank of Japan Monetary and
Economic Studies, 1(2), 1-14.

https://www.imes.boj.or.jp/research/papers/english/me1-2-1.pdf

Gülşen, E., & Kara, H. (2019). Measuring inflation uncertainty in Turkey. Central Bank
Review, 19(2), 33-43.
https://www.sciencedirect.com/science/article/pii/S130307011930068X

Hassan, A. S., & Meyer, D. F. (2020). Analysis of the non-linear effect of petrol price
changes on inflation in South Africa. International Journal of Social Sciences and
Humanity Studies, 12(1), 34-49.
https://dergipark.org.tr/en/pub/ijsshs/issue/52543/676843

Hayes, M. (2008). The Economics of Keynes: A new guide to the General Theory. Edward
Elgar Publishing.
https://books.google.com/books?
hl=en&lr=&id=rKauSD15RtYC&oi=fnd&pg=PR7&dq=keynes+general+theory&ots
=XZw10PoqeC&sig=HFrnXZaKzMeHARijpmEU5hLM-Fg

Hongo, D. O., Li, F., & Ssali, M. W. (2019). Trade-off Phillips curve, inflation and economic
implication: The Kenyan case. Int J Econ Financ, 11, 60.
https://www.academia.edu/download/67355473/39690.pdf

Hossain, A. A. (2015). Inflation volatility, economic growth and monetary policy in

Bangladesh. Applied Economics, 47(52), 5667-5688.
https://www.tandfonline.com/doi/abs/10.1080/00036846.2015.1054074

JUMONO, S., SOFYAN, J. F., SUGIYANTO, S., & MALA, C. M. F. (2021). The short-run
and long-run dynamics between liquidity and real output growth: An empirical study
in Indonesia. The Journal of Asian Finance, Economics and Business, 8(5), 595-605.
https://www.koreascience.or.kr/article/JAKO202112748675106.page

31
Kanyi, P., & Kalui, F. (2014). The effects of tax policy reforms on tax revenue in Kenya. The
Strategic Journal of Business and Change Management, 2(31), 601-620.
https://www.academia.edu/download/69530312/53-146-1-PB.pdf

Kasidi, F., & Mwakanemela, K. (2013). Impact of inflation on economic growth: A case
study of Tanzania. Asian Journal of empirical research, 3(4), 363-380.
https://archive.aessweb.com/index.php/5004/article/view/3366

Mankiw, N. G. (1995). Real business cycles: A new Keynesian perspective. In Essential

Readings in Economics (pp. 328-341). Palgrave, London.
https://link.springer.com/chapter/10.1007/978-1-349-24002-9_18

Meade, J. E. (2013). A Neo-Classical Theory of Economic Growth (Routledge Revivals).

Routledge. https://www.taylorfrancis.com/books/mono/10.4324/9780203106631/neo-
classical-theory-economic-growth-routledge-revivals-james-meade

Mueller, S. D. (2008). The political economy of Kenya's crisis. Journal of Eastern African
Studies, 2(2), 185-210.
https://www.tandfonline.com/doi/abs/10.1080/17531050802058302

Mugenda, O. (2003). &Mugenda A.(2003). Research methods: quantitative and qualitative

approaches. https://scholar.google.com/citations?
user=FovF9ccAAAAJ&hl=en&oi=sra

Mundell, R. A. (1963). Capital mobility and stabilization policy under fixed and flexible
exchange rates. Canadian Journal of Economics and Political Science/Revue
canadienne de economiques et science politique, 29(4), 475-485.

Nakagawa, S., Johnson, P. C., & Schielzeth, H. (2017). The coefficient of determination R 2
and intra-class correlation coefficient from generalized linear mixed-effects models
revisited and expanded. Journal of the Royal Society Interface, 14(134), 20170213.
https://royalsocietypublishing.org/doi/abs/10.1098/rsif.2017.0213

Nantob, N. (2015). Income inequality and inflation in developing countries: An empirical

investigation. Economics Bulletin, 35(4), 2888-2902.
https://econpapers.repec.org/article/eblecbull/eb-15-00481.htm

32
Ndung'u, S. G. (2018). Dynamics of inflation and its effects on the Kenyan
economy (Doctoral dissertation, Strathmore University). https://su-
plus.strathmore.edu/handle/11071/6479

Osamwonyi, I. O., & Kasimu, A. (2013). Stock market and economic growth in Ghana,
Kenya and Nigeria. International Journal of Financial Research, 4(2), 83.
https://www.academia.edu/download/42631953/2657-8417-1-SM.pdf

Passarelli, F., & Tabellini, G. (2017). Emotions and political unrest. Journal of Political
Economy, 125(3), 903-946.

https://www.journals.uchicago.edu/doi/abs/10.1086/691700

Rudd, J., & Whelan, K. (2005). New tests of the new-Keynesian Phillips curve. Journal of
Monetary Economics, 52(6), 1167-1181.
https://www.sciencedirect.com/science/article/pii/S0304393205000772

Sahnoun, M., & Abdennadher, C. (2019). Causality between inflation, economic growth and
unemployment in North African countries. Economic Alternatives, 1, 77-92.
https://www.unwe.bg/uploads/Alternatives/6_EA_1_2019_en.pdf

Saungweme, T. (2021). Inflation and economic growth in Kenya: An empirical examination.

https://uir.unisa.ac.za/bitstream/handle/10500/28344/Inflation%20and%20economic
%20growth%20in%20Kenya%20An%20empirical%20examination.pdf

Scott, J., & Marshall, G. (Eds.). (2009). A dictionary of sociology. Oxford University Press,
USA. https://books.google.com/books?
hl=en&lr=&id=pfeROnUcAPkC&oi=fnd&pg=PR1&dq=london+economic+dictionar
y+2009&ots=eKVEy14zE7&sig=qGde03IiJZXRJqb8OJQroDhOIsc

Sidrauski, M. (1967). Rational choice and patterns of growth in a monetary economy. The
American Economic Review, 57(2), 534-544. https://www.jstor.org/stable/1821653

Szostak, R. (2009). The causes of economic growth. Springer-Verlag Berlin Heidelberg.

https://link.springer.com/content/pdf/10.1007/978-3-540-92282-7.pdf

Van, D. D. (2019). Money supply and inflation impact on economic growth. Journal of
Financial Economic Policy.

33
 https://www.emerald.com/insight/content/doi/10.1108/JFEP-10-2018-0152/full/html

Vergnhanini, R., & De Conti, B. (2017). Modern Monetary Theory: a criticism from the
periphery. Brazilian keynesian review, 3(2), 16-31.
https://www.braziliankeynesianreview.org/BKR/article/view/115

World Bank. (2006). World development report 2007: Development and the next generation.
The World Bank.
https://biennale.adeanet.org/Documentation/Papers%20for%20presentation/
01.%20Session%201/Final%20PDF%20documents/Session%201%20Doc
%201%20World%20Bank%20ENG.pdf

Yemba, B., Kitenge, E., & Woodburne, P. (2020). Non‐linear Effects of Inflation on
Economic Growth in the Democratic Republic of the Congo. South African Journal of
Economics, 88(4), 536-550.
https://onlinelibrary.wiley.com/doi/abs/10.1111/saje.12249

APPENDICES

34
 Agraph of trend in economic growth from 1990
to 2021
10
Economic growth 8

0
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0
-2199 199 199 199 199 200 200 200 200 200 201 201 201 201 201 202
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/
Axis Title

Source: (Researcher, 2022)

A graph of trend in inflation rate from 1990 to

2021
50
45
40
35
30
25
Inflation

20
15
10
5
0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
/ 19 /19 /19 /19 /19 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/
Axis Title

Source: (Researcher.2022)

35