The Structuralist Theory of Inflation was proposed by Gunnar Myrdal and Peter Streeten in the 1950s and 1960s.Their theory posits that inflation in developing economies is often caused by structural issues within the economy, rather than by traditional causes such as monetary expansion or demand-pull factors.

This theory is a critique of classical and Keynesian theories of inflation, which primarily focus on demand-side factors (such as excessive money supply or excessive aggregate demand) as the main cause of inflation. Myrdal and Streeten argue that inflation in developing countries arises due to structural factors, such as inequalities in income distribution, the production structure, and imbalances between different sectors of the economy.

Key Points:

1. Structural Imbalances: Developing economies often face imbalances between sectors (e.g., agriculture vs. industry), causing inflation when demand outpaces supply.

2. Income Inequality: Large income disparities contribute to inflation, as the wealthier population demands more goods, raising prices for everyone.

3. Cost-Push Inflation: Inflation is also driven by rising costs of imports (e.g., food, fuel, raw materials), which developing countries often depend on.

4. Monopolies and Market Imperfections: Monopolistic practices in key sectors (like energy or transport) can push prices up due to lack of competition.

5. Policy Implications: Structural reforms, such as improving productivity and reducing inequality, are needed to address inflation in developing countries.

Example:

Take the case of India during the 1960s and 1970s, which was undergoing a process of industrialization while still largely dependent on agriculture. The Green Revolution increased agricultural output in some regions, but overall agricultural productivity was still low. At the same time, the industrial sector grew rapidly, leading to higher demand for goods. However, the agricultural sector couldn’t meet this rising demand due to supply constraints, and the economy relied on imports of essential commodities like food and oil.

In this case, inflation was not just a result of excess demand or high money supply. It was driven by supply-side constraints (e.g., low agricultural productivity), monopolistic practices, and income inequality (as only a small section of society benefited from industrial growth). Hence, the structuralist theory of inflation helps to explain the long-term and deep-rooted causes of inflation in this context, which monetary policy alone could not solve.

Conclusion:

The Structuralist Theory of Inflation, proposed in the 1950s and 1960s, highlights that inflation in developing economies stems from structural issues and requires long-term reforms, rather than just monetary or demand-side interventions.