Inflation and Growth: The Empirical Evidence

  • A. P. Thirlwall


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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Copyright information

© A. P. Thirlwall 1974

Authors and Affiliations

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

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