World Inflation and the Developing Countries

World Inflation and the Developing Countries

World Inflation and the Developing Countries

World Inflation and the Developing Countries

Excerpt

In the 1970s inflation became a severe problem of global dimensions. Following remarkable stability in the 1960s, prices rose sharply in 1973 and 1974. High international liquidity associated with dollar outflows from the United States in the early 1970s, coordinated business-cycle booms in industrial countries in 1973, sharp increases of grain prices following poor weather in 1972, and the fourfold oil price increase in 1973-74 all contributed. Industrial countries had an average inflation rate of 10.1 percent in 1973 and 1974, compared with an average of 4.5 percent in the period from 1967 to 1972. The inflationary surge helped provoke the global recession of 1974-75, as many governments took restrictive measures despite the contractionary influence of higher oil import bills. By the turn of the decade, the industrial countries had still not found an answer to the problem of stagflation.

The developing countries did not pass through these economic disruptions unscathed. Global inflation swept them along, and even regions with traditions of price stability experienced high domestic inflation rates. Inflation in Asia and Africa, for example, averaged 18 percent in 1973-74, in contrast to a 1967-72 rate of 5 percent. Moreover, the global recession that followed the inflationary surge of 1973-74 cut back the export markets of developing countries, curbing their growth despite a substantial increase in foreign borrowing that cushioned the shock.

This volume examines how the global inflation and subsequent recession affected developing countries. By the application of quantitative methods, it demonstrates the dominant role of oil prices in worsening the terms of trade of most developing countries, measures the transmission of external inflation into their domestic economies, explores the policy responses of representative countries, and analyzes a number of other issues, including the effect of world inflation and recession on debt burdens and capital needs. The questions examined touch on issues such as . . .

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