Nonlinear Inflation Regimes and Per-Capita Growth: Comparative Evidence from China and the Philippines (1987-2024)

Abstract

This paper examines whether the relationship between inflation and GDP per-capita growth is better characterized as nonlinear and regime-dependent rather than strictly linear in China and the Philippines. Using annual World Development Indicators data for 1987–2024, the study estimates country-specific linear benchmark models and threshold-based regime models with inflation as the threshold variable and trade openness as a supporting control. The results show that the threshold specification improves model fit in both countries, indicating that the inflation-growth relationship changes across inflation environments. However, the substantive pattern of this regime dependence differs sharply between the two cases. For China, the estimated inflation threshold is 3.05%; inflation is negatively associated with per-capita growth below this threshold but positively associated with growth above it. For the Philippines, the baseline threshold is 2.72%, and inflation is negatively associated with per-capita growth in both regimes. A robustness check excluding the pandemic year 2020 shifts the Philippine threshold upward to 9.23% while preserving the negative sign in both regimes. These findings do not support a single common threshold at which inflation uniformly becomes growth-reducing in both countries. Instead, they suggest that inflation regimes are country-specific and must be interpreted in relation to macroeconomic structure, historical growth composition, and exceptional shock periods. The paper concludes that threshold-based analysis remains useful, but its policy interpretation should be context-sensitive rather than universal.