Impact Of Inflation On Madagascar Economic Growth

Inflation is defined as a general rise in the price level. It is measured by the rate ofinflation which is the change in the Consumer Price Index. There are several types ofinflation. Depending on its intensity, there is creeping inflation if the rate is less than8%, open inflation until20%and hyperinflation above it. According to its origin,there are monetary inflation due to an increase in the money supply, inflation bydemand generated by an increase in aggregate demand and/or a decrease in aggregatesupply, inflation in the cost (wage inflation and inflation by profit) caused by therising cost of inputs, wages and profit margins. Inflation has many repercussions, it iscalled a necessary evil because it can reduce unemployment and it stimulates theproduction and economic growth in a country where its intensity is low and his time isshort. Apparently, it also has negative consequences, the deterioration of the tradebalance, the unequal distribution of national income, blocking economic growth.In Madagascar, the inflation rate is calculated by INSTAT. Regarding the period2000-2010, the main sources of inflation in Madagascar are the currency income(grants, loans and direct investment) increase the supply of credit and the increase inpublic expenditure, and the low agricultural productivity (especially rice), naturaldisasters, political crises and the increase in international prices of industrial productsespecially oil. By using the data from INSTAT and other institutions like the WorldBank, and using ADF and the PP test, VEC and VAR models, this paper proves that inMadagascar the inflation has a weak effect on economic growth in a short-run. But itcan be devastating at the long-run. The rate is in most cases "two-digit" between2000and2010; it does not contribute to economic growth. Instead, it merely reinforces thepoverty that exists for years with average real growth of3.7%during the last18years.