Usually it is assumed that the stage of development makes no difference to the nature and causes of inflation and the theories of inflation relevant to the developed economies can also be used to explain inflation in underdeveloped countries.

But, the economists, like Myrdal, Streeten and several other Latin American economists hold the view that the developing countries need separate theory of inflation due to their structural backwardness.

The traditional aggregative analysis of aggregate demand and aggregative supply works well in the developed economies where markets are efficient and integrated and the substitutions in consumption and production and intersectoral resource mobility are smooth and fast.

But the situation is different in under­developed countries which are structurally backward, unbalanced and highly fragmented due to market imperfections and various rigidities.

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As a result, under- utilisation of resources in some sectors and overutilisation of resources in others coexist in these economies.

Thus, what the underdeveloped economies need is not aggregative analysis but disaggregated sectoral analysis which can highlight the structural constraints and sectoral bottle-necks largely responsible for generating and perpetuating inflationary tendencies in these countries. ‘

The structuralism view of inflation as advocated by the Latin American economists can be summed up in the following two propositions:

(i) Whereas inflation in developed countries is associated with full-employment policies and the labour market response to these policies, inflation in the developing economies is associated with the developmental effort and the structural response to the effort.

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(ii) The socio-economic-political structure of the developing countries ultimately determines the sources and nature of inflation by determining various kinds of sectored demand and supply gaps and bottlenecks that emerge in the process of development.

In short, to understand the native and causes of inflation in an underdeveloped or developing economy, a study of the bottlenecks and gaps which obstruct the growth process is essential.