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Immiserizing growth is a theoretical situation first proposed by Jagdish Bhagwati, in 1958,[1] where economic growth could result in a country being worse off than before the growth. If growth is heavily export biased it might lead to a fall in the terms of trade of the exporting country. In rare circumstances this fall in the terms of trade may be so large as to outweigh the gains from growth. If so, this situation would cause a country to be worse off after growth than before. This result is only valid if the growing country is able to influence world prices. Harry G. Johnson had, independently, worked out conditions for this result in 1955.[2]
The conditions under which immiserizing growth might be able to occur are extreme: Strongly export-biased growth must be combined with very steep Relative Supply and Relative Demand curves, so that the change in the terms of trade is large enough to offset the direct favorable effects of an increase in a country’s productive capacity.[3] Most economists now regard the concept of immiserizing growth as more a theoretical point than a real-world issue.[3]
[edit] References
- ^ Bhagwati, Jagdish. 1958. "Immiserizing Growth: A Geometrical Note," Review of Economic Studies 25, (June), pp. 201-205.
- ^ Johnson, Harry G. 1955. "Economic Expansion and International Trade," Manchester School 23, pp. 95-112
- ^ a b Krugman, Paul R.; Maurice Obstfeld Marc J. Melitz (2011). "Chapter 5: The Standard Trade Model". International Economics - Theory and Policy - Global edition (9th ed.). p. 122.
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