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Inflation, Growth, and External Debt: A View of the Landscape

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  • Thorvaldur Gylfason

Abstract

This paper reconsiders the relationship between inflation, economic growth and external debt, and discusses various channels through which (a) increased inflation tends to reduce growth and raise foreign indebtedness over time and (b) declining growth tends to amplify both inflation and debt. Based on a simple model of the simultaneous determination of inflation and growth, a non-parametric statistical comparison of the growth record and external indebtedness of high- and low-inflation economies reveals significantly slower growth and greater debts in the high-inflation economies since 1973. The observed growth differential indicates that the real costs of inflation over time may be high for individual countries as well as for the world economy as a whole.
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Suggested Citation

  • Thorvaldur Gylfason, 1991. "Inflation, Growth, and External Debt: A View of the Landscape," The World Economy, Wiley Blackwell, vol. 14(3), pages 279-297, September.
    • Handle: RePEc:bla:worlde:v:14:y:1991:i:3:p:279-297
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    File URL: http://hdl.handle.net/10.1111/j.1467-9701.1991.tb00849.x
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    1. Stanley Fischer, 1983. "Inflation and Growth," NBER Working Papers 1235, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Alexandru Minea & Patrick Villieu, 2006. "Long-Run Monetary and Fiscal Policy Trade-Off in an Endogenous Growth Model with Transaction Costs," Post-Print halshs-00261119, HAL.
    2. Chokri Zehri, 2017. "The Relaxing of Capital Controls and Rise of External Debt," American Journal of Economics and Business Administration, Science Publications, vol. 9(4), pages 61-70, December.
    3. Vinayagathasan, Thanabalasingam, 2013. "Inflation and economic growth: A dynamic panel threshold analysis for Asian economies," Journal of Asian Economics, Elsevier, vol. 26(C), pages 31-41.
    4. Ahortor, Christian R.K. & Adenutsi, Deodat E., 2009. "Inflation, capital accumulation and economic growth in import-dependent developing countries," MPRA Paper 29353, University Library of Munich, Germany, revised 2010.
    5. Christophe Rault & Alexandru Minea & Patrick Villieu, 2008. "Further theoretical and empirical evidence on money to growth relation," Economics Bulletin, AccessEcon, vol. 28(13), pages 1.
    6. John F. Helliwell, 1994. "International Growth Linkages: Evidence from Asia and the OECD," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 7-29, National Bureau of Economic Research, Inc.
    7. Ariyanto, Anto, 2017. "CRITICAL REVIEW : Inflasi dan Pertumbuhan Jangka Panjang : Sebuah Teori Baru Keynesian dan Bukti semiparametrik Lanjut," INA-Rxiv 5ydqg, Center for Open Science.
    8. Minea, Alexandru & Villieu, Patrick, 2010. "Financial development, institutional quality and maximizing-growth trade-off in government finance," Economic Modelling, Elsevier, vol. 27(1), pages 324-335, January.
    9. repec:ebl:ecbull:v:5:y:2008:i:21:p:1-7 is not listed on IDEAS
    10. Henri Ngoa Tabi & Henri Atangana Ondoa, 2011. "Inflation, Money and Economic Growth in Cameroon," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 2(1), pages 45-56, March.
    11. Alexandru Minea & Patrick Villieu, 2006. "Thresholds Effects in Monetary and Fiscal Policies in a simple Cash-in-Advance Endogenous Growth Model," Post-Print halshs-00261219, HAL.
    12. Morvillier, Florian, 2020. "Do currency undervaluations affect the impact of inflation on growth?," Economic Modelling, Elsevier, vol. 84(C), pages 275-292.
    13. Gylfason, Thorvaldur, 1998. "Output gains from economic stabilization," Journal of Development Economics, Elsevier, vol. 56(1), pages 81-96, June.
    14. Gylfason, Thorvaldur, 1999. "Exports, Inflation and Growth," World Development, Elsevier, vol. 27(6), pages 1031-1057, June.
    15. Madhu Sehrawat & A. K. Giri, 2015. "Re-examining the Threshold Effects in Inflation–Growth Nexus: Evidence from India," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(2), pages 57-67, Fabruary.
    16. Linda Glawe & Jamel Saadaoui & Can Xu, 2025. "Nonlinearities in the Inflation-Growth Relationship and the Role of Uncertainty: Evidence from China’s Provinces," Working Papers 2025.4, International Network for Economic Research - INFER.
    17. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    18. Félix, Elisabete Gomes Santana & Belo, Teresa Freitas, 2019. "The impact of microcredit on poverty reduction in eleven developing countries in south-east Asia," Journal of Multinational Financial Management, Elsevier, vol. 52.
    19. repec:osf:inarxi:5ydqg_v1 is not listed on IDEAS
    20. Alexandru MINEA & Patrick VILLIEU, 2010. "DeVELOPPEMENT FINANCIER, QUALITe INSTITUTIONNELLE ET CROISSANCE : UN MODeLE SIMPLE AVEC EFFETS DE SEUIL," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 32, pages 31-58.
    21. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 2001. "Does inflation matter for growth?," Japan and the World Economy, Elsevier, vol. 13(4), pages 405-428, December.
    22. Minea, Alexandru & Villieu, Patrick, 2009. "Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 304-319, June.

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