A colleague of mine challenged me recently to come up with solid resources to prove that inflation hurts developing countries. Anyone have any links/books?
I dont know of any books explicitly about that topic but was the argument about developing countries doing inflation with their own central bank or was it about inflation from developed countries spreading and hurting the developed countries local economy?
We weren't thinking about the latter issue specifically, but inflation spread by developed countries is a good insight.
Well I know if you check out Brazil and other countries in Latin America in the 70's and 80's they had alot of left wing governments try various Keynesian to downright socialist monetary policies with their central banks that totally devalued their currency and made it worthless for local transactions and hence the average consumer relied on foreign currency which was much much harder to come by. Not to mention trying to trade in U.S dollars violated legal tender laws in Brazil as the time. Also imagine what the booms and bust must be like from monetary expansions and contractions in third world countries. They have so little capital to begin with that inflationary schemes will make them use that tiny amount and invest them in poor ways. If they keep up with the inflation then the money is worthless. But even if they contract it they still end up using their smaller amount of capital unwisely since the expansion will cause them to invest in useless endeavors since the entrepreneur thinks there is more demand for investment then there really is. Either way inflation of an artificial type only causes long term investment in third world economies more difficult then it already is.
here are some links, and sorry they are only about Brazil, I will keep looking for others for you.
Ok here is one on inflation in Zimbabwe: http://en.wikipedia.org/wiki/Hyperinflation#Zimbabwe.2C_2000s
It looks like TED had a four-day conference on African aid in June.
Here is the closing speech; at two minutes in, you can see the chart of
sub-Saharan inflation over the last few years. When leaving out
Zimbabwe, it shows recent inflation at 7%(!) Since US wholesale
inflation was 6.3% last year, maybe we need to focus on our own
third-world country. ;)http://www.ted.com/index.php/talks/view/id/152
Of course, the chart leaves out Zimbabwe, assumes that the IMF numbers
are correct, and even 7% year-to-year inflation is hardly "under
control." (Even 7% can undermine a currency pretty quickly.) And the
poorest areas will be higher and get hit the hardest.
I think you should read the third chapter of Hoppe's The Economics and Ethics of Private Property titled "Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Economic Order". This chapter adresses exactly the subject of inflation and its effects worldwide.
All governments inflate and there is no exception in developing countries. This inflation has the same effects that inflation has in a developed country: wealth transfer, consumption of capital, etc. But there is an additional aspect. On top of the local inflation you should put the US inflation, because the dollar is the reserve currency of the world.
Let me give you an example. Because of US inflation policy the Colombian Peso began to gain value against the dollar. A few big exporting companies were losing a lot of money, so they used their influence and a few months ago the Colombian Central Bank (Banco de la República) printed 20 billion pesos in order to buy dollars and maintain an artificial high price and devalue the Peso. This was an inflationist decision taken on account of favoring a few which were losing money on behalf of US inflationist agenda. In this case there is a double transfer of wealth: from the poor and middle class of Colombia, to the Colombian and US Government and the minions of both.