Inflation Dynamics of Developing Countries in the Process of Globalization

Abstract

Inflation has been one of the most extensive research areas in economics literature due to its impact on purchasing power, income distribution, and economic stability. Several studies in the literature state that developed countries largely resolved their inflation problem in the 1980s, not because of the economic policies applied but due to globalization beginning to dominate the world economy. However, developing countries continued to struggle with high inflation as they integrate into the world economy. The purpose of this study is to test the impact of globalization and domestic economic policies on inflation in developing countries. To this end, we use a panel data set covering the period from 1990 to 2019. According to the results of the Generalized Method of Moments estimation, there is no statistically significant relationship between inflation and economic globalization in developing countries. However, the inflation rate is negatively related to the budget deficit ratio and positively related to the increase in money supply growth rate.