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Abstract

This paper examines the long-run inflation-growth relationship in developingeconomies by placing emphasis on sectoral heterogeneity and crosssectional dependence. This relation is explored using a large panel dataset of113 developing economies over the period 1974-2013. The empiricalfindings are consistent with a linear negative relationship. An annualincrease of 10 percent in average inflation rate tends to reduce the GDPgrowth by 0.12-0.20 percentage points. Inflation is however found topositively affect economic growth if the value-added share of agriculturalsector in the total output exceeds the threshold level of 50 percent. Theopposite applies if the value added share falls below this threshold level.