Causes and Impacts of Inflation on Developing Countries

Causes and Impacts of Inflation on Developing Countries Introduction Economic development in low developed countries is a contested argument amongst economists, all of which are looking for the best way to enact economic growth. The discussion surrounds whether stable monetary policy will encourage economic development by encouraging foreign direct investment or will currency depreciation and inflation create the right environment for exports growth and thus economic growth? This essay will discuss the causes of inflation and its repercussions for economic growth in developing nations. The argument for monetary stability and its repercussions for economic development will also be discussed. The scenario surrounding the Asian financial crisis will be used at the conclusion of the essay to illustrate the finer points in the argument for monetary stability as a means to economic development. The Causes of Inflation Krugman and Obstfeld define inflation as the increase of prices of goods[1].