RELATIONSHIP BETWEEN INFLATION AND ECONOMIC ...lbc.edu.np/images/Downloads/960b32dc-2f8a-4655-9de7...Kasidi and Mwakanemela (2013) examined the impact of inflation on economic growth

RELATIONSHIP BETWEEN INFLATION

AND ECONOMIC GROWTH

OF NEPAL

A Research

Submitted to Research Committee

Lumbini Banijya Campus

Butwal

By

MAYA ACHARYA

Lumbini Banijya Campus

Butwal

April, 2019

ii

ABSTRACTS

This research entitled Relationship between Inflation and Economic Growth of

Nepal has set twin objectives: 1) to analyze the trend of GDP, consumer’s price

index, money supply, foreign assistance and government expenditure and 2) to

investigate the relationship between GDP, consumer’s price index, money supply,

foreign assistance and government expenditure.

The research has used secondary data. Gross domestic product (GDP) is dependent

variable and others consumer’s price index, money supply, foreign assistance and

government expenditure are independent variables. Required data have been brought

from Quarterly Economic Bulletin, 2017 to be published by Nepal Rastra Bank

spanning from 1975 to 2015. Different statistical tools like average, percentage and

correlation analysis have been used to draw the conclusions.

Correlation test showed that there is a very strong and significant relationship of

consumer’s price index, money supply, government expenditure and foreign

assistance with gross domestic product. The relationship is positive supporting the

economic theories. The test also found a very strong, significant and positive

relationship of money supply, government expenditure and foreign assistance with

consumer’s price index. Similar relationship has been found of government

expenditure and foreign assistance with money supply. The relationship in between

government expenditure and foreign assistance is also very strong, significant and

positive.

This research is very useful to the researchers, professors, teachers, planners, policy

makers, students and all those who are interested in the field of the relationship

between gross domestic product, consumer’s price index, money supply, government

expenditure and foreign assistance. The research recommends to carry out frequent

research in the field in the days to come.

iii

TABLE OF CONTENTS

Title Page i

Abstracts ii

Table of Contents iii-iv

List of Tables v

List of Figures vi

Acronyms vii

CHAPTER-I: INTRODUCTION 1-3

1.1. General Background 1-2

1.2. Statement of Problem 2

1.3. Objectives of the Study 2

1.4. Hypothesis of the Study 2

1.5. Significance of the Study 2

1.6. Limitations of the Study 3

1.7. Organization of the Study 3

CHAPTER-II: REVIEW OF LITERATURE 4-8

2.1. Theoretical Review 4-5

2.1.1. Classical Theory 4

2.1.2. Keynesian Theory 4

2.1.3. Monetarism 4-5

2.2. Empirical Review 5-8

2.2.1. International Context 5-6

2.2.2. National Context 7-8

CHAPTER-III: RESERCH METHODOLODGY 9-12

3.1. Research Design 9

3.2. Nature and Source of Data 9

3.3. Processing and Organization of Data 9

3.4. Sample Period Covered 9

3.5. Model Specification 10

3.6. Variable Specification 10-11

iv

3.7. Tools and method of data analysis 11

3.8. Hypothesis Setting 11

CHAPTER-IV: TREND OF GDP, CONSUMER’S PRICEINDEX,

MONEYSUPPLY, FOREIGN ASSISTNCE

ANDGOVERNMENTEXPENDITURE

12-16

4.1. Trend of Gross Domestic Product (GDP) 12

4.2. Trend of Consumer’s Price Index 13

4.3. Trend of Money Supply 13-14

4.4. Trend of Government Expenditure 14-15

4.5. Trend of Foreign Assistance 15-16

CHAPTER-V: RELATIONSHIP BETWEEN GDP, CONSUMER’S

PRICEINDEX, MONEY SUPPLY, FOREIGN ASSISTANCE

ANDGOVERNMENT EXPENDITURE

17-21

CHAPTER-VI: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS

23-24

6.1. Summary 22-24

6.2. Conclusions 24-25

6.3. Recommendations 25

References

Index

v

LIST OF TABLES

Table No. Title Page No.

5.1. Summary of Correlation Test of GDP with CPI, M1, GE & FA 17

5.2 Summary of Correlation Test of CPI with M1, GE & FA 18

5.3. Summary of Correlation Test of M1 with GE & FA 19

5.4. Summary of Correlation Test of GE with FA 20

vi

LIST OF FIGURES

Figure No. Title Page No.

4.1. Percentage Change in Gross Domestic Product 13

4.2. Percentage Change in Consumer’s Price Index 14

4.3. Percentage Change in Money Supply (M1) 15

4.4. Percentage Change in Government Expenditure 16

4.5. Percentage Change in Foreign Assistance 17

vii

ACRONYMS

CBS – Central Bureau of Statistics

CPI – Consumer’s Price Index

FA – Foreign Assistance

GDP – Gross Domestic Product

GE – Government Expenditure

GNP – Gross National Product

MS – Money Supply

NP – Nonparametric

NRB – Nepal Rastra Bank

R & D – Research and Development

SGMM – Systematic Generalized Method of Moments

TAR – Threshold Autoregressive

1

CHAPTER-I

INTRODUCTION

1. General Background

The main objective of monetary policy is high and sustainable economic growth

accompanied with low level of inflation. High and persistent inflation and low economic

growth have been major characteristics of Nepalese economy. High inflation distorts the

optimal allocation of resources and retards growth (NRB, 2017).

Growth is an increase in the economy’s capacity to produce total volume of goods and

services during a particular time period. Mild inflation is considered to be desirable for

economic growth. Excess inflation detracts from sustainable economic growth and

development (NRB, 2007).

To achieve higher and sustainable economic growth is objective of all the countries but

the objective may not be fulfilled due to several factors affecting the economic growth.

One of influencing factors to economic growth is inflation. Inflation rate and economic

growth are macroeconomic policies in each country. All the countries make target to

higher economic growth and lower the inflation rate or to keep it constant.

Controversy is not merely limited to empirical results but there is also controversy in the

theoretical aspect. Structuralists view positive relationship whereas monetarists view

negative relation. Neo-classicists say that inflation helps in shifting income to higher

saving capitalists. Higher the saving higher, higher will be the investment and hence

economic growth. Likewise, Keynesians view that inflation helps in saving the income

which can be invested and therefore economic growth. But converse to this, Barrow says

that inflation reduces investment and therefore economic growth decreases.

Controversy has also existed regarding the causal relationship. Various empirical studies

have come with diverse results. Some have found unidirectional relationship either

running from inflation to economic growth or running from economic growth to inflation.

Some studies have arrived at the conclusion that there exists bi-directional relationship

2

running from inflation to economic growth and economic growth to inflation. Some even

have found no causal relationship in between them.

1.1. Statement of Problem

This study is deeply concerned with macroeconomic variables: inflation and economic

growth as there is no uniformity on theoretical and empirical aspects regarding the

relationship in between them. From theoretical views, inflation is positively influence

economic growth whereas it negatively influences economic growth (Fisher, 1993). From

empirical point of views, there is no uniformity regarding relationship between inflation

and economic growth. There is Negative relationship between inflation and economic

growth (Adhikari, 2014), (Baharumshah et al, 2016), (Huge, 2017). Positive relationship

(Mallik and Chowdhury, 2001), (Bhusal & Shilpakar, 2014), (Behara, 2014), (Mallik and

Chowdhury, 2001), Very high and very low level of inflation is undesirable for high

economic growth (Balcilar et al, 2017). Inflation is mainly determined by Indian inflation

with narrow money (NRB, 2007). Also has found unidirectional relation as well as

bidirectional relationship between inflation and economic growth.

Some studies found positive relation whereas some have found negative relation but

some have come with result no relation. In case of causality too, empirical results are not

same. Some have found unidirectional causal relationship and some have found bi-

directional relationship. Some studies even found no causal relationship. Therefore, this

study more interested to empirically analyze the relationship between the two variables.

Research question of the study is to analyze the degree of relationship between variables.

1.2. Objectives of the Study

i. To analyze the trend of GDP, consumer’s price index, money supply, foreign

assistance and government expenditure.

ii. To examine the degree of relationship between GDP, consumer’s price index,

money supply, foreign assistance and government expenditure.

1.3. Hypothesis of the Study

H0= Inflation is positively correlated with economic growth

H1= Inflation is negatively correlated with economic growth.

3

1.4. Significance of the Study

This study pragmatically investigates the relation between inflation and economic

growth. The results of the study add to body of the knowledge in the field of inflation and

growth. The study is helpful to government, planners and researchers in making policies.

1.5. Limitations of the Study

This study is limited to secondary data spanning from 1975 to 2015 published by NRB

and the findings of the study is generalized to Nepal only.

1.6. Organization of the Study

The whole study is divided into five chapters. The first chapter is introduction which

consists of general background, statement of problem, objectives of the study, hypothesis

of the study, significance of the study, limitations of the study and organization of the

study. Second chapter is review of literature which is further divided into two parts:

theoretical review and empirical review. The empirical review is also divided into two

parts comprising review in international context and national context. Third chapter is

methodology that includes research design; nature and sources of data; sample period

covered, organization and processing of data; tools and method of data collection; model

specification; variables specification; tools and method of data analysis; and hypothesis

testing. Variables specification includes: GDP, CPI, money supply, government

expenditure and foreign assistance. Hypothesis testing consists coefficient test and t-test

though correlation analysis. Fourth chapter will be trend of trend of GDP, consumer’s

price index, money supply, foreign assistance and government expenditure. Fifth chapter

is relationship between GDP and consumer’s price index, money supply, foreign

assistance and government expenditure. And the sixth chapter consists of major findings,

conclusions and recommendations.

4

CHAPTER-II

REVIEW OF LITERATURE

2.1. Theoretical Review

2.1.1. Classical Theory

Gokal and Hanif (2004), in their working paper “Relationship between Inflation and

Economic Growth in Fiji” have written that Adam Smith, pioneer of classical theory, has

developed production function as:

𝑄 = 𝑓 𝐿, 𝐾, 𝑆

Where L= labour, K= capital and S= land

So, growth on population, investment and land leads to the growth of output. Smith

argues that saving leads to investment which ultimately leads to growth. He also has

opined that profits do not fall due to diminishing marginal productivity but due to rise of

wages which happens because of competition among capitalists for labor demand. He has

not explicitly exhibited the relationship between inflation and growth but the negative

relationship is existed implicitly. Price rises cause to increase cost of production through

higher wages. Hence profit decreases which cause to decrease investment and growth.

2.1.2. Keynesian Theory

Ahuja (2011), in his book “Macroeconomics Theory and Policy”, has written that Keynes

argues that it the effective demand that determines the level of output and employment.

Effective demand is the point where aggregate demand and aggregate supply equalize

each other. In the short-run, aggregate demand curve is upward sloping. An increase in

aggregate demand as intersects with the aggregate supply curve, both price and output

increase. There is positive relationship between inflation and growth in the short-run.

2.1.3. Monetarism

Ahuja (2011), in his book “Macroeconomics Theory and Policy”, has described that

monetarist Milton Friedman developed neutrality theory of money. Friedman opines that

consumers’ expectation of price rise gives time them to make adjustment in the future.

So, as price increases, consumers’ wages also increase. Increased wages maintain the

5

increased price. Therefore there is no effect of inflation on growth. Economists have

termed this condition as neutrality of money.

2.2. Empirical Review

2.2.1. International Context

Kasidi and Mwakanemela (2013) examined the impact of inflation on economic growth

in Tanzania and found the existence of inflation-growth relationship. They have used

correlation coefficient and cointegration technique to establish the relationship between

inflation and GDP and coefficient of elasticity has been applied to measure the degree of

responsiveness of change in GDP to change in general price level with time series data

for the period 1990 to 2011. They concluded that there is no cointegration and long run

association between inflation and economic growth.

Behera (2014) has investigated the impact of inflation on economic growth in the six

South Asian countries. He has used the time series data for the period 1980 to 2012 using

Error Correction Model and Granger Causality Test. He found that there is high positive

correlation existence between inflation and economic growth for all the countries. The

cointegration test suggested that there is long run relationship existence for Malaysia and

no long run relationship between inflation and economic growth of the rest of the other

countries.

Liao et al (2015) tried to explore the long run effects of inflation in in the Euro area and

the US through a two country Schumpeterian growth model with cash-in-advance

constraints on consumption and R&D investment using cross country panel data to

estimate the effects of inflation on R&D. They found that increasing domestic inflation

reduces domestic R&D investment and the growth rate of domestic technology.

Baharumshah et al (2016) analyzed the relationship between inflation, inflation

uncertainty, and economic growth in a panel data of 94 emerging and developing

countries. It is based on the System Generalized Method of Moments (SGMM) that

controls for instrument proliferation. They concluded that first, when both the

proliferation of instruments problem and the biased standard error in SGMM are

accounted for, the results reveal that only in non-inflation crisis countries does inflation

6

harm growth, while inflation uncertainty promotes growth. Empirically they found that

the negative growth effect of high inflation rates and the growth enhancing effect of low

inflation. Second, the negative-level effect of not keeping inflation in check outweighs

the positive effect from uncertainty in non-inflation crisis countries in all three regimes.

Third, the existence of a positive effect of uncertainty about the inflation rate on growth

through a precautionary motive is confirmed when inflation reaches moderate ranges

(5.6–15.9%).

Balcilar et al (2017) have attempted to explore the existence of a threshold level of

inflation for the U.S. economy over 1801- 2013 using a combination of nonparametric

(NP) and instrumental variable semiparametric (SNP-IV) methods. They have concluded

that the relationship between growth and inflation is hump shaped –that higher levels of

inflation reduce growth more compared to low inflation or deflation. They also found that

high or very low levels of inflation are undesirable and are associated with lower growth

- hinting that a growth maximizing value of inflation exists.

Hung (2017) investigated the nonlinearity of inflation and economic growth: the role of

tax evasion using simple endogenous growth model with money in the utility function.

By endogenizing an agent's decision of tax evasion, he showed that the ratio of

government tax revenues over output is increasing in the tax rate for low levels of initial

tax rates. He found a nonlinear relationship between inflation and economic growth such

that a rise in the inflation rate for low levels of initial inflation may be associated with an

increase or a decrease in economic growth. He concluded that the negative relationship

between inflation and economic growth for higher levels of initial inflation is convex.

2.2.2. National Context

NRB (2007) has explored the inflation in Nepal with time series data from fiscal year

1975/76 to fiscal year 2005/2006 using ordinary least square method to run the

regressions of the general model. It covered short run equation for the inflation processes

in Nepal and to capture the inflation dynamics in the country, the long-run equation has

been developed through cointegration and error correction techniques. It concluded that

inflation in Nepal is mainly determined by Indian inflation with narrow money only

7

having an effect in the short run. It also attributed that the geographical situation of

having a shared open and contiguous border, which facilitates informal trade and goods

arbitrage, a rigid pegged exchange rate regime between both currencies along with time

varying capital mobility. The study has concluded that within the existing framework of

pegged exchange rate and capital mobility, the main influencing factor of inflation is

from India with the NRB having control over domestic inflation only in the short run but

limited control beyond that.

Bhusal and Silpakar (2011) studied growth and inflation to estimate threshold level of

inflation in Nepal. They have used Granger causality test by using annual data for the

period 1975 to 2010. They have concluded that positive and unidirectional relationship

between the inflation to economic growth. They also found that 6 percent threshold value

of inflation in Nepal and recommended that Nepal Rastra bank could apply expansionary

monetary policy for supporting economic growth till the inflation rate does not exceed

the threshold level.

Koirala (2012) investigated inflation persistence under Threshold Autoregressive (TAR)

model motivated by the fact that inflation in Nepal goes through different degrees of

persistence based on various regime shifts. He has used monthly time series of the

Consumer Price Index (CPI) from 1998:01 to 2011:12. The presence of dynamic

adjustment of inflation between high inflation and low inflation regimes defined by

threshold inflation reveals non-linear behavior of inflation. He concluded that a degree of

low persistency is found in the high inflation regime. Low inflation persistence in high

inflation regime signifies that inflation do not remain for a long period of time as a result

of policy shocks pursued to trigger inflation down.

Adhikari (2014) has examined whether inflation hampers economic growth in Nepal or

not with distributed lag models using the annual data of gross domestic product and

consumer price index. He found that the economic growth of Nepal at current time is

adversely affected by inflation at the same time, whereas the current economic growth is

favorably affected by the inflation of preceding time.

Ministry of Finance (2016) mentioned that the global production growth rate has declined

due to slow revival of world economy and decreased growth rate of large emerging

8

economies that contribute greatly to world economic growth rate. Of the economies of

large Asian countries, economies of India and China that had grown by 7.3 percent and

6.9 percent respectively in 2015 are projected to grow by 7.5 percent and 6.5 percent

respectively. The rise in price level of developed economies that stood at 1.4 percent in

2014 fell to 0.3 percent in 2015. This inflation rate recorded the lowest following the

financial crisis. The price level increase in developed economies in 2016 is projected at

0.7 percent. Fall in the oil prices is the reason behind the low price rise of developed

countries. Likewise, price of emerging and developing economies that remained at 4.7

percent in 2015 is projected to remain 4.5 percent in 2016. The increase in price level of

Euro Area is remained at zero percent in 2015 and it is expected to rise marginally by 0.4

percent in 2016. 1.9 Inflation in South Asian countries seem to be affected by the

economic incidences of other countries of the world. Inflation rate of all South Asian

countries decreased in 2015 as compared to that of 2014 as a consequence of decreased

prices of petroleum products and food commodities.

Nepal Rastra Bank (2017) has estimated the optimal inflation rate in Nepal based on the

data of the period 1978 to 2016 using ordinary least square method. It concluded that

there exists threshold effect of inflation and estimated the turning point of inflation to be

6.25 percent. It suggested that Nepal should adopt an inflation target range around the

computed optimal inflation rate to lower the inflation expectation and enhance economic

growth.

9

CHAPTER-III

RESERCH METHODOLODGY

3.1. Research Design

This study uses deductive method of analysis. It is based on both descriptive and

analytical. The variables of the study are GDP, CPI, government expenditure, money

supply and foreign assistance. GDP is regressand and whereas CPI, government

expenditure, money supply and foreign assistance are regressors. Data of related

variables are collected from NRB. Correlation method is employed to make the analysis.

3.2. Nature and Sources of Data

This study is based on the macroeconomic variables. Therefore, data are secondary in

nature and they are collected from “A Handbook of Government Finance Statistics -

2017” published by NRB.

3.3. Processing and Organization of Data

The collected data GDP, government expenditure, money supply and foreign assistance

are measured in Nepalese currency. They are expressed in Rs. million and CPI is

expressed in percentage.

3.4. Sample Period Covered

Data have sample period of 41 years spanning from 1975 to 2015.

3.5. Model Specification

To establish the functional relationship between dependent variable and explanatory

variables, Solow’s growth model is used. Solow’s growth model was appeared in the

“Quarterly Journal of Economics”-1956 under the title “A Contribution to the Theory of

Economic Growth” to analyze movement of economic system through change in capital-

labor ratio. The growth model is like this:

10

𝑄 = 𝑓 𝐿, 𝐾 ⋯⋯⋯⋯⋯⋯⋯⋯ 1

Where, Q= output, L= labour and K= capital. Now, on the basis of Solow’s growth

model, the functional relationship between GDP and its explanatory variables CPI,

government expenditure, money supply and foreign assistance is established as follows:

𝐺𝐷𝑃 = 𝑓 𝐶𝑃𝐼, 𝐺𝐸, , 𝑀𝑆, 𝐹𝐴 ⋯⋯⋯⋯⋯⋯⋯⋯ 2

Where GDP= gross domestic product,

CPI= consumer’s price index

GE= government expenditure

MA= money supply

FA= foreign assistance

3.6. Variable Specification

a) Gross Domestic Product (GDP)

Total money value of all the final goods and services calculated at current price and

produced in a particular geographical territory generally during a year is called GDP.

𝐺𝐷𝑃 = 𝑃𝑖𝑄𝑖

𝑛

𝑖=0

Where, 𝑃𝑖= price of ith

commodity

𝑄𝑖= quantity of ith

commodity

b) Consumer’s Price Index (CPI)

Index numbers are the statistical devices that measure relative change in the magnitude of

variables or a group of variables in two or more situations with respect to time,

geographical location, income, profession, employment, price, corruption etc. Index

numbers, in fact, are taken as barometer of the economy. They can be used to measure

the pressure of the economic activities like increasing or decreasing price, rising or

falling production, deficit or surplus trade and so on. CPI are unweighted and weighted.

Unweighted CPI is measured by Simple Aggregate of Price Method and Simple Average

of Price Relative Method. On the other hand, weighted CPI is measured by Weighted

Aggregate Indices and Weighted Average of Price Relative Index. Formula for

constructing Simple Aggregate of Price Method is P01 =𝛴𝑃1

𝛴𝑃0× 100

P01= . The price index for the current year with respect to the base year

11

𝛴𝑃1= aggregate prices of the selected goods in the current year

𝛴𝑃0= aggregate of prices of the selected goods in the base year

c) Government Expenditure Government expenditure is the spending of government that government makes on two

headings: regular or administrative expenditure and development or capital expenditure.

Government expenditure is made to create public utilities.

d) Foreign Assistance

Foreign assistance is also known as foreign aid which refers to the resources like money,

goods, machineries and manpower that is given or loaned by the government or

organizations or people in the rich countries to help people in poor countries.

e) Money Supply Money supply is defined as the total quantity of money that central monetary authority

brings in the economy during a certain time period. In this paper, money supply refers to

𝑀1.

𝑀1 = 𝑀0 + 𝑆𝑎𝑣𝑖𝑛𝑔 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠

Where, 𝑀0= notes and coins held by people in the in the economy plus other valuables

that can be immediately converted into cash.

3.7. Tools and method of data analysis

The tools are used in analysis of data t-test through correlation.

3.8. Hypothesis Setting a) Hypothesis setting for correlation

0 < 𝐵𝑖 ≤ 0.20, very weak association

0.20 < 𝐵𝑖 ≤ 0.40, weak association

0.40 < 𝐵𝑖 ≤ 0.60, moderate association

0.60 < 𝐵𝑖 ≤ .80, strong association

0.80 < 𝐵𝑖 ≤ 1, very strong association

Where, B = co-efficient and i = 1, 2, 3 and 4.

b) Hypothesis setting of t-Statistics

Significant hypothesis: 𝑡 > 2

Insignificant Hypothesis:𝑡 < 2

12

CHAPTER-IV

TREND OF GDP, CONSUMER’S PRICE INDEX,

MONEYSUPPLY, FOREIGNASSISTNCE AND

GOVERNMENTEXPENDITURE

4.1. Trend of Gross Domestic Product (GDP)

Table 4.1 put in Index-III shows the trend of gross domestic product from fiscal year

1975 to 2015. GDP is 166010 million rupees in the fiscal year 1975 and it has become

22554600 million rupees in the fiscal year 2015. Gross domestic product is 4586954

million rupees in average. Gross domestic product is below the average in 27 years from

1975 to 2001 whereas it is above the average in 14 years from 2002 to 2015. Gross

domestic product has been increasing since from beginning to ending but the percentage

change in it is not so. It is trending in so fluctuated way. How the percentage change in

gross domestic trending is shown in the figure 4.1.

Figure 4.1: Percentage Change in Gross Domestic Product

Source: Index- III

In the figure 4.1, trend of percentage change in gross domestic product has been depicted.

The trend is most ups and down in the fiscal years from 1975 to 1981. The ups and

downs are small in the years from 1981 to 2001 and the fluctuation is larger from 2001 to

2015.

-15

-10

-5

0

5

10

15

20

25

30

35

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

13

4.2. Trend of Consumer’s Price Index

Table 4.2 put in the Index-IV shows the trend of Consumer’s Price Index (CPI) from

fiscal year 1975 to 2015. CPI is 4.2 in the fiscal year 1975 and it has become 100 in the

fiscal year 2015. CPI is 31.59 in average. CPI is below the average in 23 years from 1975

to 1997 whereas it is above the average in 18 years from 1998 to 2015. CPI has decreased

in the year 1976 and it has been increasing from 1976 to 2015.Percentage change in CPI

is trending ahead in waved way. How the percentage change in CPI is trending is shown

in the figure 4.2.

Figure 4.2: Percentage Change in Consumer’s Price Index

Source: Index-IV

In the figure 4.2, trend of percentage change in consumer’s price index has been depicted.

The trend is like the wave.

4.3. Trend of Money Supply Table 4.3put in the Index-V shows the trend of money supply (M1) from fiscal year 1975

to 2015. M1 is 1337.7 million rupees in the fiscal year 1975 and it has become 424744.6

million rupees in the fiscal year 2015. M1 is 73145.29 in average. M1 is below the

average in 27 years from 1975 to 2001 whereas it is above the average in 14 years from

2002 to 2015. M1 has been increasing from beginning to ending. Percentage change in

CPI is trending ahead in fluctuation way. How the percentage change in M1 is trending is

shown in the figure 4.3.

-5

0

5

10

15

20

25

14

Figure 4.3: Percentage Change in Money Supply (M1)

Source: Index-V

In the figure 4.2, trend of percentage change in money supply (M1) has been depicted.

The trend is fluctuated.

4.4. Trend of Government Expenditure

Government expenditure is the spending of government that government makes on two

headings: regular or administrative expenditure and development or capital expenditure.

Government expenditure is made to create public utilities like construction of roadways,

ropeways, railways, waterways, electricity generation and expansion, establishment of

schools, colleges, universities, training centers, research centers, hospitals, health post,

health centers, clinics, radio, television, press, peace, security, defense and so on.

Table 4.4 put in Index-VI shows the trend of government expenditure from fiscal year

1975 to 2015. Government expenditure is 1513.8 million rupees in the fiscal year 1975

and it has become 531340 million rupees in the fiscal year 2015. It is 93505.1 million

rupees in average. It is below the average in 29 years from 1975 to 2004 whereas it is

above the average in 12 years from 2005 to 2015. It has been increasing from beginning

to ending. Percentage change in government expenditure is trending ahead in fluctuation

way. How the percentage change in government expenditure is trending is shown in the

figure 4.4.

-5

0

5

10

15

20

25

30

35

40

45

15

Figure 4.4: Percentage Change in Government Expenditure

Source: Index-VI

In the figure 4.4, trend of percentage change in government expenditure has been

depicted. The trend is most fluctuated.

4.5. Trend of Foreign Assistance

Foreign assistance is also known as foreign aid to be given by foreign countries the poor

countries. Nepal is developing country. Due to weak economic condition foreign aid is

needed to develop infrastructures as well as to invest in different sectors. Various

countries provide aids bilaterally and multilaterally. If donor countries give aid directly

that is called bilateral aid and if is supported by more donor countries and international

agencies, it is called multilateral aid.

Table 4.5 put in the Index-VII shows the trend of foreign assistance from fiscal year 1975

to 2015. Foreign assistance is 386.8 million rupees in the fiscal year 1975 and it has

become 125691.1 million rupees in the fiscal year 2015. It is 20175.1 million rupees in

average. It is below the average in 28 years from 1975 to 2003 whereas it is above the

average in 13 years from 2004 to 2015. It has been increasing from beginning to ending.

Percentage change in foreign is trending ahead in fluctuation way. How the percentage

change is trending is shown in the figure 4.5.

0

5

10

15

20

25

30

35

40

16

Figure 4.5: Percentage Change in Foreign Assistance

Source: Index-VII

In the figure 4.5, trend of percentage change in foreign assistance has been depicted. The

trend is fluctuated. Foreign assistance has increased surprisingly in the fiscal year 2015.

-40

-20

0

20

40

60

80

100

120

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

17

CHAPTER-V

RELATIONSHIP BETWEEN GDP, CONSUMER’S PRICE

INDEX, MONEY SUPPLY, FOREIGN ASSISTANCE AND

GOVERNMENT EXPENDITURE

This chapter is very important one as it investigates the relationship between the selected

variables. This study has chosen Gross Domestic Product (GDP) as the dependent

variable and the others like Consumer’s Price Index (CPI), Money Supply (M1),

Government Expenditure (GE) and Foreign Assistance (FA) as the independent variables.

Table 5.1: Summary of Correlation Test of GDP with CPI, M1, GE & FA

Variables Coefficients t-Statistics

Consumer’s Price Index (CPI) 0.976683 28.41064

Money Supply (M1) 0.993655 55.17444

Government Expenditure (GE) 0.996123 70.71192

Foreign Assistance (FA) 0.956707 20.52777

Source: Appendix-II

Table 5.1 shows the summary of correlation test. Coefficient of CPI is 0.976683 which

lies in the range of 0.80 to 1.00. Its meaning is that there is very strong association

between consumer’s price index and gross domestic product. Value of t-statistics is

28.41064 which is greater than 2.00. It means there is significant relationship between

consumer’s price index and gross domestic product. The positive sign of coefficient

establishes a positive relationship between two variables that is gross domestic product

increases as consumer’s price index increases and gross domestic product decreases as

consumer’s price index decreases. The positive relationship between consumer’s price

index and gross domestic product supports the Keynesian theory which says that

production increases with creeping inflation.

Coefficient of money supply (M1) is 0.993655 which lies in the class 0.80 to 1.00. Its

meaning is that there is very strong association between money supply and gross

domestic product. Value of t-statistics is 55.17444 which is greater than 2.00. It means

18

there is significant relationship between money supply and gross domestic product. The

positive sign of coefficient establishes a positive relationship between two variables that

is gross domestic product increases as money supply increases and gross domestic

product decreases as money supply decreases. The relationship between money supply

and gross domestic product has supported the theory.

Coefficient of government expenditure is 0.996123 which lies in the class 0.80 to 1.00.

Its meaning is that there is very strong association between government expenditure and

gross domestic product. Value of t-statistics is 70.71192 which is greater than 2.00. It

means there is significant relationship between government expenditure and gross

domestic product. The positive sign of coefficient establishes a positive relationship

between two variables that is gross domestic product increases as government

expenditure increases and gross domestic product decreases as government expenditure

decreases. The relationship between government expenditure and gross domestic product

has supported the theory.

Coefficient of foreign assistance is 0.956707 which lies in the range of 0.80 to 1.00. Its

meaning is that there is very strong association between foreign assistance and gross

domestic product. Value of t-statistics is 20.52777 which is greater than 2.00. It means

there is significant relationship between foreign assistance and gross domestic product.

The positive sign of coefficient establishes a positive relationship between two variables

that is gross domestic product increases as foreign assistance increases and gross

domestic product decreases as foreign assistance decreases. The relationship between

foreign assistance and gross domestic product has supported the theory.

Table 5.2: Summary of Correlation Test of CPI with M1, GE & FA


Money Supply (M1) 0.965388 23.11520



Source: Appendix-II

Table 5.2 shows the summary of the correlation of Consumer’s Price Index (CPI) with

Money Supply (M1), Government Expenditure (GE) and Foreign Assistance (FA). The

19

coefficient value of money supply is 0.965388 which lies in the class 0.80 to 1.00. It

means that there exists a very strong relationship of money supply with consumer’s price

index. The positive sign of the coefficient supports theory that is price increases as

quantity of money increases. Value of t-statistics is 23.11520 which is more than 2.00.

This t-statistics also shows the significant relationship between money supply and

consumer’s price index.

The coefficient value of government expenditure is 0.957835 which lies in the class 0.80

to 1.00. It means that there exists a very strong relationship of government expenditure

with consumer’s price index. The positive sign of the coefficient supports theory that is

price increases as government expenditure increases. Value of t-statistics is 20.81896

which is more than 2.00. This t-statistics also shows the significant relationship between

government expenditure and consumer’s price index.

The coefficient value of government expenditure is 0.957835 which lies in the class 0.80

to 1.00. It means that there exists a very strong relationship of government expenditure

with consumer’s price index. The positive sign of the coefficient supports theory that is

price increases as government expenditure increases. Value of t-statistics is 20.81896

which is more than 2.00. This t-statistics also shows the significant relationship between

government expenditure and consumer’s price index.

The coefficient value of foreign assistance is 0.930107 which lies in the class 0.80 to

1.00. It means that there exists a very strong relationship of foreign assistance with

consumer’s price index. The positive sign of the coefficient supports theory that is price

increases as foreign assistance increases. Value of t-statistics is 15.81460 which is more

than 2.00. This t-statistics also shows the significant relationship between foreign

assistance and consumer’s price index.

Table 5.3: Summary of Correlation Test of M1 with GE & FA




Source: Appendix-II

20

Table 5.3 is the summary of correlation test of money supply (M1) with government

expenditure (GE) and Foreign Assistance (FA). Coefficient value of government

expenditure is 0.992623 which lies in the range of 0.80 to 1.00. It indicates that there is

very strong relationship of government expenditure with money supply. Positive sign of

coefficient supports the economic theory that quantity of money increases in the economy

as government expenditure increases. Value of t-Statistics is 51.12710 which is greater

than 2.00. Value of t-Statistics also shows that there exists a significant association

between government expenditure and money supply.

Coefficient value of foreign assistance is 0.977452 which lies in the range of 0.80 to 1.00.

It indicates that there is very strong relationship of foreign assistance with money supply.

Positive sign of coefficient supports the economic theory that quantity of money

increases in the economy as foreign assistance increases. Value of t-Statistics is 28.90845

which is greater than 2.00. Value of t-Statistics also shows that there exists a significant

association between foreign assistance and money supply.

Table 5.4: Summary of Correlation Test of GE with FA

Variable Coefficient t-Statistics


Source: Appendix-II

Table 5.4 is the summary of correlations test of Government Expenditure (GE) with

Foreign Assistance (FA). Coefficient of government expenditure is 0.963629 which lies

in the class of 0.80 to 1.0. Its meaning is that there is very strong relationship of

government expenditure with foreign assistance. The relationship supports economic

theory i.e. government expenditure increases as foreign assistance increases. Value of t-

statistics is 22.51810 which is greater than 2. This means t-Statistics also shows that there

is a significant association between government expenditure and foreign assistance.


consumer’s price index, money supply, government expenditure and foreign assistance

with gross domestic product. The relationship is positive supporting the economic

theories. The test also found a very strong, significant and positive relationship of money

supply, government expenditure and foreign assistance with consumer’s price index.

21

Similar relationship has been found of government expenditure and foreign assistance

with money supply. The relationship in between government expenditure and foreign

assistance is also very strong, significant and positive.

5.1. MAJOR FINDINGS

Trend analysis showed that GDP is 166010 million rupees in the fiscal year 1975 and it

has become 22554600 million rupees in the fiscal year 2015. Gross domestic product is

4586954 million rupees in average. Gross domestic product is below the average in 27

years from 1975 to 2001 whereas it is above the average in 14 years from 2002 to 2015.

Gross domestic product has been increasing since from beginning to ending but the

percentage change in it is not so. It is trending in so fluctuated way

Consumer’s price index (CPI) is 4.2 in the fiscal year 1975 and it has become 100 in the

fiscal year 2015. CPI is 31.59 in average. CPI is below the average in 23 years from 1975

to 1997 whereas it is above the average in 18 years from 1998 to 2015. CPI has decreased

in the year 1976 and it has been increasing from 1976 to 2015. Percentage change in CPI

is trending ahead in waved way.

Money supply (M1) is 1337.7 million rupees in the fiscal year 1975 and it has become

424744.6 million rupees in the fiscal year 2015. M1 is 73145.29 in average. M1 is below

the average in 27 years from 1975 to 2001 whereas it is above the average in 14 years

from 2002 to 2015. M1 has been increasing from beginning to ending. Percentage change

in CPI is trending ahead in fluctuation way.

Government expenditure is 1513.8 million rupees in the fiscal year 1975 and it has

become 531340 million rupees in the fiscal year 2015. It is 93505.1 million rupees in

average. It is below the average in 29 years from 1975 to 2004 whereas it is above the

average in 12 years from 2005 to 2015. It has been increasing from beginning to ending.

Percentage change in government expenditure is trending ahead in fluctuation way.

Foreign assistance is 386.8 million rupees in the fiscal year 1975 and it has become

125691.1 million rupees in the fiscal year 2015. It is 20175.1 million rupees in average. It

is below the average in 28 years from 1975 to 2003 whereas it is above the average in 13

22

years from 2004 to 2015. It has been increasing from beginning to ending. Percentage

change in foreign is trending ahead in fluctuation way. Foreign assistance has increased

surprisingly in the fiscal year 2015.




theories. The test also found a very strong, significant and positive relationship of money

supply, government expenditure and foreign assistance with consumer’s price index.

Similar relationship has been found of government expenditure and foreign assistance

with money supply. The relationship in between government expenditure and foreign

assistance is also very strong, significant and positive.

23

CHAPTER-VI

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

6.1. Summary

Since inflation is one of the influential factors of economic growth, all the economists are

so interested at finding the relationship between economic growth and inflation.

According to several researches and studies, the relationship is not same. Some studies

have established positive relation whereas some have found negative or no relation.

Controversy is not merely limited to empirical results but also in the theoretical aspect.

Structuralists view positive relationship whereas monetarists view negative relation. Neo-

classicists say positive relationship. Likewise, Keynesians view that inflation helps in

saving the income which can be invested and therefore economic growth. But converse to

this, Barrow says that inflation reduces investment and therefore economic growth

decreases.

Review of literature found both positive and negative relationship between inflation and

economic growth. It found negative growth effect of high inflation rates and the growth

enhancing effect of low inflation.

This study is more interested to empirically see the relationship between the two

variables. Research question of the study is to analyze the relationship between variables.

The study has set twin objectives: 1 ) to analyze the trend of GDP, consumer’s price

index, money supply, foreign assistance and government expenditure and 2) to analyze

the relationship in between GDP and consumer’s price index, money supply, foreign

assistance and government expenditure

Trend analysis showed that all the variables: GDP, money supply, foreign assistance and

government expenditure except consumer’s price index are trending ahead in increasing

way. Consumer’s price index has fluctuated trend.




theories.

24

6.2. Conclusions

This study has selected variables gross domestic product, consumer’s price index, money

supply, government expenditure and foreign assistance. The dependent variable is gross

domestic product and others are independent. What kind of relationship exists between

GDP, consumer’s price index, money supply, foreign assistance and government

expenditure? This is the research questions set by the study. To analyze the trend and

degree of the relationship between the variables are twin objectives of the study.

According to the trend analysis, GDP, money supply, foreign assistance and government

expenditure are trending ahead in increasing way but consumer’s price index has

fluctuated trend. Correlation test showed that there is a very strong and significant

relationship of the chosen variables supporting economic theories.

6.3. Recommendations

The most concerning aspect of the study is the analysis of the relationship between

consumer’s price index and gross domestic product. Correlation test found a positive,

significant and very strong association between the two variables. The positive

relationship of consumer’s price index with gross domestic product means that GDP

increases as price level increases and GDP decreases as price level decreases. The

relationship has supported the Keynesian theory. Some small increment in the price level

that is creeping inflation brings profit to the producers and they are encouraged to invest

more and hence productivity goes to be high resulting economic growth. So, it is

recommended to the concern authorities that economy can entertain small increment in

price level for economic growth. This is also recommended that economic growth and

prosperity are possible through increased government expenditure, foreign assistance and

money supply.

25

REFRENCES

Adhikari, R. (2015). Whether inflation hampers economic growth in Nepal. Indian

Journal of Economics and Business, 14(1).

Ahuja, H. L. (2011). Macroeconomics. New Delhi: S. Chand and Company Ltd.

Baharumshah, A. Z., Slesman, L., &Wohar, M. E. (2016). Inflation, inflation uncertainty,

and economic growth in emerging and developing countries: Panel data

evidence. Economic Systems, 40(4), pp 638-657.

Balcilar, M., Gupta, R., & Jooste, C. (2017). The growth-inflation nexus for the US from

1801 to 2013: A semiparametric approach. Journal of Applied Economics, 20(1),

pp 105-120.

Bank, N. R. (2007). Inflation in Nepal. Research Department, Kathmandu, Nepal.

Bank, N. R.(2017). Optimal Inflation Rate for Nepal. Research Department,Kathmandu,

Nepal

Behera, J. (2014). Inflation and its impact on economic growth: Evidence from six South

Asian countries. Journal of Economics and Sustainable Development, 5(7), pp

145-154.

Bhusal, T. P., &Silpakar, S. (2012). Growth and inflation: estimation of threshold point

for Nepal. Economic Journal of Development Issues, 13, pp 131-138.

Blackburn, K., & Powell, J. (2011). Corruption, inflation and growth. Economics

Letters, 113(3), pp 225-227.

Chu, A. C., Cozzi, G., Lai, C. C., & Liao, C. H. (2015). Inflation, R&D and growth in an

open economy. Journal of International Economics, 96(2), pp 360-374.

Fischer, S. (1993). The role of macroeconomic factors in growth. NBER working paper,

No. 4565.

Gokal, V. and Hanif, S. 9 2004). Relationship between inflation and economic growth.

Working paper 2004/04

26

Hung, F. S. (2017). Explaining the nonlinearity of inflation and economic growth: The

role of tax evasion. International Review of Economics & Finance.

Koirala, T. P. (2012). Inflation persistence in Nepal: A TAR Representation (No. 11).

NRB Working Paper.

Mallik, G. and Chowdhury, A. (2001). Inflation and economic growth: evidence from

South Asian countries. Asian Pacific Development Journal, Vol. 8, No.1

Ministry of Finance (2016). Economic Survey:FY 2015/16, Kathmandu: Ministry of

Finance.

Mwakanemela, K., &Kasidi, F. (2013). Impact of inflation on economic growth: A case

study of Tanzania.

Sidrauski, M. (1967). Rational choice and patterns of growth in a monetary

economy.American Economic Review 57(2), pp 534-544.

27

Index-I

Money Supply (M1), Government Expenditure (GE), Foreign Assistance (FA), Gross Domestic

Product (GDP) in Rs millions and Consumer Price Index (CPI), from 1975 to 2015

Source: Nepal Rastra Bank, Quarterly Economic Bulletin, 2017

Year M1 CPI GE FA GDP

1975 1337.7 4.2 1513.8 386.8 166010

1976 1452.5 4.1 1913.4 505.7 173940

1977 1852.9 4.3 2330.4 556.9 172803

1978 2060.6 4.7 2674.9 848.4 197270

1979 2504.9 4.9 3020.5 996.4 261280

1980 2830.4 5.4 3470.7 1340.5 233510

1981 3207.8 6.1 4092.3 1562.2 273070

1982 3611.5 6.7 5361.3 1723.2 309880

1983 4348.9 7.7 6979.2 2075.9 338210

1984 4931.5 8.2 7437.3 2547.5 392900

1985 5480 8.5 8394.8 2678.3 465870

1986 7029.3 9.8 9797.1 3674 557343

1987 8120.2 11.2 11513.2 3990.9 638645

1988 9596.6 12.4 14105 5892.6 769061

1989 11775.4 13.4 18005 7347 892696

1990 14223 14.7 19669.3 7935 1034158

1991 16283.6 16.1 23549.8 8460.7 1203703

1992 19457.7 19.5 26418.2 10714.2 1494871

1993 23833 21.2 30897.7 11557.2 1714739

1994 28510.4 23.1 33597.4 11249.4 1992720

1995 32985.4 24.9 39060 14289 2191750

1996 36498 26.9 46542.4 15031.9 2489130

1997 38460.3 29.1 50723.76 16457.1 2805130

1998 45163.8 31.5 56118.3 16189 3008450

1999 51062.5 35.1 59579 17523.9 3420360

2000 60979.7 36.3 66272.5 18797.5 3794880

2001 70577 37.2 79835.1 14384.8 4415185

2002 77156.2 38.3 80072.2 15885.6 4594426

2003 83754.1 40.1 84006.1 18912.4 4922308

2004 93973.7 41.7 89442.6 23657.3 5367491

2005 100205.8 43.6 102560.5 22041.8 5894117

2006 114388.8 47.1 110889.2 25854.3 6540841

2007 113060.8 49.8 133604.6 29300.6 7278270

2008 126888.6 53.2 161349.9 36351.7 8156582

2009 154343.9 59.9 219661.9 49769.4 9882702

2010 196459.3 65.6 259689.1 57997.8 11927740

2011 218159.3 71.9 295363.4 51893.4 13669530

2012 222351.4 77.8 339167.5 47198.9 15273440

2013 263705.7 85.5 358638.3 60204.6 16950110

2014 301590.2 93.3 435052.3 63705.6 19645400

2015 424744.6 100 531340 125691.1 22554600

28

Index-II

Result of Correlation Test

Covariance Analysis: Ordinary

Date: 06/13/18 Time: 05:04

Sample: 1975 2015

Included observations: 41

Correlation

t-Statistic

Probability GDP CPI M1 GE FA

GDP 1.000000

-----

-----

CPI 0.976683 1.000000

28.41064 -----

0.0000 -----

M1 0.993655 0.965388 1.000000

55.17444 23.11520 -----

0.0000 0.0000 -----

GE 0.996123 0.957835 0.992623 1.000000

70.71192 20.81896 51.12710 -----

0.0000 0.0000 0.0000 -----

FA 0.956707 0.930107 0.977452 0.963629 1.000000

20.52777 15.81460 28.90845 22.51810 -----

0.0000 0.0000 0.0000 0.0000 -----

29

Index-III

Table 4.1: Trend of Gross Domestic Product Year Gross Domestic Product (GDP) % Change in GDP

1975 166010

1976 173940 4.77

1977 172803 -0.65

1978 197270 14.15

1979 261280 32.44

1980 233510 -10.62

1981 273070 16.94

1982 309880 13.48

1983 338210 9.14

1984 392900 16.17

1985 465870 18.57

1986 557343 19.63

1987 638645 14.58

1988 769061 20.42

1989 892696 16.07

1990 1034158 15.84

1991 1203703 16.39

1992 1494871 24.18

1993 1714739 14.70

1994 1992720 16.21

1995 2191750 9.98

1996 2489130 13.56

1997 2805130 12.69

1998 3008450 7.24

1999 3420360 13.69

2000 3794880 10.94

2001 4415185 16.34

2002 4594426 4.05

2003 4922308 7.13

2004 5367491 9.04

2005 5894117 9.81

2006 6540841 10.97

2007 7278270 11.27

2008 8156582 12.06

2009 9882702 21.16

2010 11927740 20.69

2011 13669530 14.60

2012 15273440 11.73

2013 16950110 10.97

2014 19645400 15.90

2015 22554600 14.80

Average 4586954

Source: Nepal Rstra Bank, Quarterly Economic Bulletin, 2017

30

Index-IV

Table 4.2: Trend of Consumer’s Price Index

Year CPI % change in CPI

1975 4.2

1976 4.1 -2.38

1977 4.3 4.87

1978 4.7 9.30

1979 4.9 4.25

1980 5.4 10.20

1981 6.1 12.96

1982 6.7 9.83

1983 7.7 14.92

1984 8.2 6.49

1985 8.5 3.65

1986 9.8 15.29

1987 11.2 14.28

1988 12.4 10.71

1989 13.4 8.06

1990 14.7 9.70

1991 16.1 9.52

1992 19.5 21.11

1993 21.2 8.71

1994 23.1 8.96

1995 24.9 7.79

1996 26.9 8.03

1997 29.1 8.17

1998 31.5 8.24

1999 35.1 11.42

2000 36.3 3.41

2001 37.2 2.47

2002 38.3 2.95

2003 40.1 4.69

2004 41.7 3.99

2005 43.6 4.55

2006 47.1 8.02

2007 49.8 5.73

2008 53.2 6.82

2009 59.9 12.59

2010 65.6 9.515

2011 71.9 9.60

2012 77.8 8.20

2013 85.5 9.89

2014 93.3 9.12

2015 100.0 7.18

Average 31.59


31

Index-V

Table 4.3: Trend of Money Supply Year Money Supply (M1) % Change in M1

1975 1337.7

1976 1452.5 8.58

1977 1852.9 27.56

1978 2060.6 11.20

1979 2504.9 21.56

1980 2830.4 12.99

1981 3207.8 13.33

1982 3611.5 12.58

1983 4348.9 20.41

1984 4931.5 13.39

1985 5480.0 11.12

1986 7029.3 28.27

1987 8120.2 15.51

1988 9596.6 18.18

1989 11775.4 22.70

1990 14223.0 20.78

1991 16283.6 14.48

1992 19457.7 19.49

1993 23833.0 22.48

1994 28510.4 19.62

1995 32985.4 15.69

1996 36498.0 10.64

1997 38460.3 5.37

1998 45163.8 17.42

1999 51062.5 13.06

2000 60979.7 19.42

2001 70577.0 15.73

2002 77156.2 9.32

2003 83754.1 8.55

2004 93973.7 12.20

2005 100205.8 6.63

2006 114388.8 14.15

2007 113060.8 -1.16

2008 126888.6 12.23

2009 154343.9 21.63

2010 196459.3 27.28

2011 218159.3 11.04

2012 222351.4 1.92

2013 263705.7 18.59

2014 301590.2 14.36

2015 424744.6 40.83

Average 73145.29


32

Index-VI

Table 4.4: Trend of Government Expenditure Year Government Expenditure % Change in Government Expenditure

1975 1513.8

1976 1913.4 26.39

1977 2330.4 21.79

1978 2674.9 14.78

1979 3020.5 12.92

1980 3470.7 14.90

1981 4092.3 17.90

1982 5361.3 31.00

1983 6979.2 30.17

1984 7437.3 6.56

1985 8394.8 12.87

1986 9797.1 16.70

1987 11513.2 17.51

1988 14105.0 22.51

1989 18005.0 27.64

1990 19669.3 9.24

1991 23549.8 19.72

1992 26418.2 12.18

1993 30897.7 16.95

1994 33597.4 8.73

1995 39060.0 16.25

1996 46542.4 19.15

1997 50723.7 8.98

1998 56118.3 10.63

1999 59579.0 6.16

2000 66272.5 11.23

2001 79835.1 20.46

2002 80072.2 0.29

2003 84006.1 4.91

2004 89442.6 6.47

2005 102560.5 14.66

2006 110889.2 8.12

2007 133604.6 20.48

2008 161349.9 20.76

2009 219661.9 36.14

2010 259689.1 18.22

2011 295363.4 13.73

2012 339167.5 14.83

2013 358638.3 5.74

2014 435052.3 21.30

2015 531340.0 22.13

Average 93505.1


33

Index-VII

Table 4.5: Trend of Foreign Assistance Year Foreign Assistance % Change in Foreign Assistance

1975 386.8

1976 505.7 30.73

1977 556.9 10.12

1978 848.4 52.34

1979 996.4 17.44

1980 1340.5 34.53

1981 1562.2 16.53

1982 1723.2 10.30

1983 2075.9 20.46

1984 2547.5 22.71

1985 2678.3 5.13

1986 3674.0 37.17

1987 3990.9 8.62

1988 5892.6 47.65

1989 7347.0 24.68

1990 7935.0 8.00

1991 8460.7 6.62

1992 10714.2 26.63

1993 11557.2 7.86

1994 11249.4 -2.66

1995 14289.0 27.02

1996 15031.9 5.19

1997 16457.1 9.48

1998 16189.0 -1.62

1999 17523.9 8.24

2000 18797.5 7.26

2001 14384.8 -23.47

2002 15885.6 10.43

2003 18912.4 19.05

2004 23657.3 25.08

2005 22041.8 -6.82

2006 25854.3 17.29

2007 29300.6 13.32

2008 36351.7 24.06

2009 49769.4 36.91

2010 57997.8 16.53

2011 51893.4 -10.52

2012 47198.9 -9.04

2013 60204.6 27.55

2014 63705.6 5.81

2015 125691.1 97.29

Average 20175.1


Documents

RELATIONSHIP BETWEEN INFLATION AND ECONOMIC ...lbc.edu.np/images/Downloads/960b32dc-2f8a-4655-9de7...Kasidi and Mwakanemela (2013) examined the impact of inflation on economic growth