Nigerian Journal of Banking and Financial Issues (NJBFI)

TRILATERAL ANALYSIS OF INFLATION, GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICA

Abstract

This study investigates the interactive effects of inflation and government expenditure on economic growth in Sub-Saharan Africa (SSA). The Two-Step Generalized Method of Moments (GMM) estimator was employed as the econometric approach, using panel data from 47 SSA countries spanning 1990-2023. To address potential endogeneity issues, the study utilized valid instruments derived from theoretical foundations. The findings revealed that inflation is a negative and significant determinant of economic growth, particularly at higher levels. However, prudent government expenditure, maintained below the 17.108% threshold, can mitigate these adverse effects, suggesting a synergistic relationship between the two variables. Additionally, the study underscores the importance of sound fiscal management and institutional reforms in fostering sustainable economic growth in the region. These results offer valuable insights for policymakers in SSA, highlighting that effectively managing inflation and implementing targeted government spending can create a more conducive environment for economic growth and development.