Inflation and Monetary Institutions in Developing Countries

The ‘developing’ countries with which this note is concerned might have been identified otherwise fifty years ago. Nowadays they comprise the clientèle, actual or potential, of the international lending agencies. To stress the importance of the international economy in their inflationary and financial experience, they will be labelled here ‘peripheral’ countries. Diverse as they are, they share a distinctive feature which derives from populousness and late-coming to modern industry: across most of their economic activity, in the same product lines, strikingly different levels of labour productivity co-exist. This is true in primary, secondary, and tertiary production; in metal-working as in construction, in textiles as in agriculture, in household services as in mining, etc. Both the absolute gap between high and low productivity, and the persistently high proportion of total output which is low-productivity in origin, are remarkable. Clearly in any economy as it grows the competitive process will keep recreating a spread of different levels of labour productivity. What is distinctive about peripheral countries is the marked bipolarity of their distribution of productivity levels. Indeed, in the analysis of their relationship to the international economy and to inflation, this is their central feature.