The Impact of Inflation on Economic Growth: a Case Study of Sudan

Abstract

Sudan's economic strategy has been concerned with ensuring price stability while maintaining sustainable expansion of the economy, but the findings from previous papers on effect of price rises on expansion of economy in Sudan produced contradictory results. The objective of this paper was to study the impact of price increase on Sudanese economy applying yearly information from the WDI between 1990 and 2020 and linear regression model. The research also applied pre- estimation and post estimation tests. According to the study, the threshold level of inflation in Sudan is 7.4 percent and the inflation have significant and negative impact, which is 20 percent decrease in GDP in Sudan, owing to the recent decline in purchasing power of the Sudanese pound caused by the reduction of subsidies in Sudan and there was also negative correlation between GDP and inflation after doing the correlation test. The study determined that the exchange rate has a positive but insignificant effect on Sudanese GDP expansion, and that GCF has positive and insignificant effect on Sudanese GDP growth. The results also revealed FDI has an important and significant effect on Sudanese GDP expansion, whereas net export has a positive but insignificant impact.