The Nexus Between Macroeconomic Indicators and Economic Growth in Namibia

Abstract

The incidence of unrelated factors led to negative global economic shocks on two key macroeconomic indicators: unemployment and inflation. As a participant in the global economic market, Namibia was not isolated from negative external shocks. The Namibian government used macroeconomic and fiscal policies to stabilise inflation and reduce unemployment. However, there is a time lag before these policies can have a significant effect on Namibia’s economic situation. This study aims to predict unemployment and inflation trends and their impact on economic growth and explore the relationship and direction of causality among the variables. This study applied a cointegration test followed by a Vector Error Correction Model (VECM) to test the nexus between the dependent variable, real GDP, and the independent variables, inflation and unemployment. Time series data spanning 2000 – 2021 on all variables were used for the study. The results showed a positive relationship between real GDP and inflation, with a change of 0.07% in the long run, but an inverse relationship between real GDP and unemployment, with a change of 3.2% in the long run. These findings imply that less concern should be given to rising prices in Namibia in the short run, as an increase in economic growth will have a positive impact on reducing unemployment in the long run.