Concept of Immiserising Growth of an Economy by Professor Jagdish Bhagwati–Explained!

This concept was first introduced by Professor Jagdish Bhagwati. Immiserising growth refers to that situation where an increase in a country’s export commodity leads to such deterioration in its terms of trade that there is a net decline in its export earnings and social welfare.

We have seen above that, given demand schedules of goods X and Y and other assumptions like competitive markets, a relative reduction in the cost of production of labour-intensive commodity X in labour-abundant C1 leads to a fall in the product price ratio (P_X/P_Y). It means to say that there is deterioration in terms of trade (TT) of C1.

Following conditions must be satisfied for a country to experience immiserising growth.

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i. Its growth should be characterised by a more than proportionate increase in the production of its export commodity.

ii. The supply of its export commodity should be price inelastic so that it is willing to export more even at reduced price.

iii. The share of its export commodity in the total supply in international markets should be large enough to depress its international price. This condition applies irrespective of whether the country in question is “large” or “small” or whether it is rich or poor.

What matters is its share in the total world exports, and the relevant elasticity’s of supply and demand for its export commodity.

The demand for this commodity by the importing countries should be price inelastic so that with an increase in the volume of exports, there is a net decline in the export earnings of the exporting country.

Before trade, the exporting country must already be heavily engaged in trade, so that the decline in its welfare on account of deterioration in its terms of trade results in ‘losses’ that are more than the addition to its gains from additional trade.

It is seen that developing countries are more prone to suffering from deterioration in terms of trade with an expansion in their exports.

This is because a major portion of their exports comprise mainly minerals and other primary products which tend to have inelastic demand in the developed countries.

In addition, the developed countries have been able to create synthetic substitutes for a number of these products.

The concept of immiserising growth, introduced by Professor Jagdish Bhagwati, refers to that situation where an increase in a country’s export commodity leads to such deterioration in its terms of trade that there is a net decline in its export earnings and social welfare.