immiserizing growth

Quick Reference

Growth of national or regional production which actually decreases welfare. This could occur if the effect of growth of part of the world economy was to worsen its terms of trade so much that its welfare actually fell. This is unlikely for a single country, as even if growth worsens its terms of trade, much of the resulting loss falls on other countries exporting similar products. It could conceivably apply to a group of countries specializing on exporting a product in inelastic demand, for example oil exporters. It has been suggested that it could apply to less developed countries as a group: this seems unlikely given the wide variety of goods they export, many of them manufactures with elastic world demand. It must be remembered that worse terms of trade do not necessarily imply immiserizing growth: if trade accounts for 20 percent of national income, the terms of trade have to worsen by over 5 percent for each 1 percent growth of output for growth to be immiserizing.

Subjects: Economics.

Reference entries