Inflation and growth in developing economies: A tribute to Professor Thirlwall

Kevin Nell

MPRA Paper from University Library of Munich, Germany

Abstract: This paper pays tribute to Professor Thirlwall’s substantive work in growth and development economics by providing a review of his book Inflation, Saving and Growth in Developing Economies (1974b) [hereafter ISGD]. Indeed, the hallmark of a good economics book is whether its theoretical content and empirical predictions made several decades ago remain relevant when assessed against more recent evidence. Thirlwall’s ISGD book exhibits all these qualities. It emphasises the importance of distinguishing between different types of inflation. Structural inflation and, to a lesser extent, cost inflation, should be seen as the inevitable outcomes of the growth and development process, whereas demand inflation may act as a direct stimulus to growth, as predicted by the Kaldor-Thirlwall model of forced saving and the inflation tax model. These theoretical insights remain highly relevant in today’s developing economies. Studies tend to show that inflation thresholds, up until the point where the effect of inflation on growth is positive, tend to be higher in developing economies relative to advanced countries, owing to a combination of structural, cost and demand-side sources of inflation. The analysis further argues that inflationary finance of development, as advanced in ISGD, remains a viable development strategy when open-economy constraints are considered.

Keywords: Developing economies; inflation; investment; growth; saving; Thirlwall; threshold (search for similar items in EconPapers)
JEL-codes: O11 O23 O47 (search for similar items in EconPapers)
Date: 2023-09-01, Revised 2023-09-01
New Economics Papers: this item is included in nep-fdg, nep-hpe, nep-mon and nep-pke
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Published in Investigación Económica 326.82(2023): pp. 41-97

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https://mpra.ub.uni-muenchen.de/118764/1/MPRA_paper_118764.pdf revised version (application/pdf)

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