[01] Shapan Chandra Majumder, School of Economics, Shandong University, Jinan, P.R.China; Department of Economics, Comilla University, Comilla, Bangladesh.

One of the most important targets for any developing country like Bangladesh is to achieve high economic growth. Even though there are many factors that affect economic growth, the concern of this paper is only on inflation. The relationship between economic growth and inflation is debatable. The main objective of this study is to investigate the relationship between inflation and economic growth in Bangladesh. To test unit root or stationary, Augmented Dickey Fuller Test is used. This study uses Granger causality and then error correction model to investigate the relationship between economic growth and inflation in Bangladesh during the period of 1975 –2013. To analyse the data the model is formed by taking economic growth of gross domestic product as dependent variable and three variables (i.e. inflation, money supply and remittance) as independent variables. Results of the unit root test indicate that only inflation rate has stationary and other three variables have unit root problem or non- stationary at level. But when these three variables are tested at first difference then the problem of unit root has disappeared and hence they have become stationary at first difference. The VECM presents that there exists a statistically significant long run positive relationship between inflation rate and economic growth of gross domestic product. Bangladesh has indicated a statistically significant long run positive relationship between the rate of inflation and economic growth of GDP.

Inflation, Economic Growth, Cointegration, Vector Error Correction Model (VECM)

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