The Impact of Globalization on Inflation in Developing Countries

Abstract

This paper examines the impact of globalization on inflation in developing and emerging economies. We estimate both traditional and open-economy versions of the Phillips curve for all developing economies by incorporating both domestic and foreign output gaps. We find mixed results: whether globalization has significantly affected domestic inflation in developing countries depends on the measure of inflation. Under GDP deflator inflation, there has been a significant change in the output-inflation tradeoff, but CPI inflation suggests otherwise. This highlights the importance of paying closer attention to the measure of inflation implemented, which is something that the current literature neglects to do.