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Inflation and Growth: The Empirical Evidence

  • A. P. Thirlwall
Chapter

Abstract

Despite the long history of the idea that inflation may be conducive to development, the hypothesis has never been put to a thorough, satisfactory empirical test. What evidence there is tends to be sketchy, impressionistic and inconclusive. Historical time series studies by Bhatia1 and by Eckstein2 give conflicting results. Bhatia attempted to examine Rostow’s thesis (see Chapter 2) that the take-off stage of economic development has typically been associated with inflation by looking at the historical relation between inflation and growth in five countries — Germany, Sweden, Canada, Japan and the United Kingdom. Bhatia finds no evidence that ‘take-off’ in Sweden, Japan and Canada was associated with inflation. Over time, he concludes that the relation between growth and inflation has, if anything, been inverse in the United Kingdom, Germany and Japan, and significantly positive only in Sweden. Eckstein has reviewed the statistics for eight industrialised countries over nearly a century and concludes:

periods of rapid growth occurred with and without inflation, and that periods of stagnation also saw a very wide range of price changes. Thus, as a long-run phenomenon, there is no historical association between growth and inflation.

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Notes

  1. 2.
    O. Eckstein, ‘Inflation, the Wage-Price Spiral and Economic Growth’ in The Relationship of Prices to Economic Stability and Growth (Washington: U.S. Government Printing Office, 1958).Google Scholar
  2. 1.
    J. Ternent, Inflation and Private Investment in Latin America, unpublished doctoral dissertation, University of Oregon (March 1967).Google Scholar
  3. 3.
    N. Ahmad, Deficit Financing, Inflation and Capital Formation: The Ghanaian Experience 1960–65 (München: Weltforum Verlag, 1970).Google Scholar
  4. 2.
    G. Maynard and W. Van Rijckeghem, ‘Stabilisation Policy in an Inflationary Economy: An Analysis of the Argentina Case’ in Development Policy: Theory and Practice, ed. G. Papanek (Harvard University Press, 1968).Google Scholar
  5. 1.
    M. Edel, Food Supply and Inflation in Latin America (Praeger, 1969).Google Scholar
  6. 1.
    R. Kahil, Inflation and Economic Development in Brazil 1946–1963 (Oxford University Press, 1972).Google Scholar

Copyright information

© A. P. Thirlwall 1974

Authors and Affiliations

  • A. P. Thirlwall
    • 1
  1. 1.University of KentUK

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