y a combination of the two types of causes. That sociological causes embodied in governmental policies interact with the market mechanisms to create an international transfer of inflation. Certainly, this explanation would fit well the international inflation resulting from the actions of the OPEC (Organization of Petroleum Exporting Countries) oil cartel. This hypothesis, however, does not provide a convincing explanation of most internationally transmitted inflation.
Nearly all of the many mechanisms involved in the international transmission of inflation are based in the integration of the world economic order (Salant, 1987). The level of economic integration involved in the international transmission of inflation is the level of markets and market responses, and does not include similarities or dissimilarities in governmental policies, or the international movements of social action which transcend national boundaries (Salant, 1987). The level of economic integration involved in the international transmission of inflation is the product of the international mobility of capital, goods, services, and labor (Salant, 1987). Mobility of these factors inhibits the ability of prices, wages, and interest rates to vary from country to country. Thus, it can be inferred that the variations in prices, wages, and interest rates will decrease, as the level of economic integration in the world increases. From this inferrence, follows the proposition that the creation of inflation in one country will certainly result in the transfer of that inflation to other countries. Conversely, however, it also follows from this inference than an absence of inflation in most countries will tend to moderate the development of inflation in any one country.
The creation of the European Economic Community (EEC) as a part of the EC provided one level of economic integration among the organization's member countries. The cr...