Immiserizing growth

The term impoverishment growth, a process referred to, in which the decline in terms of trade - rate is greater than the growth rate of the gross domestic product. The terms of trade rate is used here as an indicator of the economic prosperity of a country.

Impoverishment growth means that the welfare level of the population is declining despite economic growth and technical progress. It is a term of foreign trade and is used primarily in connection with developing countries.

The fact that growth can become destitute an economy that is a paradox that was first mentioned in the post-war debate about the dollar shortage by " John Richard Hicks " in 1953.

Since then, many economists have attempted an analysis of the effects of growth on the terms of trade of developing countries, yet many economists see the impoverishment of growth rather than a theory than as a real world problem.

Definition

The word impoverishment growth consists of the terms " impoverishment " and " growth " together. Impoverishment can be understood in this context as a social welfare loss, such as fall in real income or job loss.

One speaks of impoverishment growth if a country expands the production capacity of an export good, but at the same time also increase the price of imported goods. While the country produces more, but impoverished by the fact that the imported goods prices increase more than the gain that is achieved by the additional exports.

Examples of such distortions which ultimately lead to impoverishment income distortions monopoly power in foreign trade and distortion by duties on imported goods.

Theoretical approach by Bhagwati

The conditions of impoverishment growth had Jagdish Bhagwati 1958 in his article " Immiserizing Growth: A Geometrical Note" by reference to a two -country two - goods model. He showed that this phenomenon can also occur in a stable market environment. This is an extension of the Leontief model 1936 dar. This model describes a transfer of power transfer -induced impoverishment which market instability requires.

The main cause for the impoverishment Bhagwati sees the policy, eg the monopoly power of the country in trade and free trade policies. The introduction of an optimal duty that could counteract the impoverishment growth loud Bhagwati.

Causes and consequences

Impoverishment growth is mainly a problem in developing countries. These are mainly suppliers of primary goods, ie agricultural products such as cocoa, coffee, rice, or raw materials.

For the offered primary goods the elasticity of demand in the industrialized countries is very high, since usually there are substitute goods.

Increases a developing country now its production capacity, either by technical progress or intensification of agriculture, also the bid amount increases on the world market, resulting in a drop in prices. Sinking in this course not the imported goods prices, there is a deterioration in the terms of trade rate, the country will suffer more loss than profit despite increased production. Similar approaches can be found in the Prebisch -Singer thesis.

Another cause of impoverishment growth may be the specialization on a few export commodities. Rising prices for export reduces demand because there are plenty of substitutes for this good of other providers. Furthermore, mismanagement of government and exploitation of the population is a problem in many developing countries. Profits in the export sector are often not sufficiently passed on to the end of the work population, so that no development can take place of the domestic market.

In addition, cultural and political dependency relationships between developing and developed countries play a role. In the political realm, for example, tariffs and subsidies decisive factors.

Example

The coffee market is proving to clarify as a suitable example to the impoverishment growth. The World Bank supported by financial resources in recent years, the expansion of coffee production in Vietnam.

With this support, and the low wages in Vietnam, the country could become the second largest coffee producer in the world. Today, the world-wide production of coffee is significantly greater than the consumption. In addition, new technologies allow for the processing of raw coffee of inferior quality, so that the Committee has been significantly reduced. By flooding the market with cheap coffee from Vietnam, there was a significant drop in prices. The price of green coffee declined in 2003 adjusted for inflation to its lowest level for 100 years. Worldwide exceed the cost of cultivating the sale proceeds. This cost deficit leads to a reduction of acreage and falling real wages of the farmers. Thus, the consumption and thus the prosperity drops. This process is referred to as impoverishment growth.

First of all states where the coffee export a large part of the foreign exchange is earned with which debts must be paid off, are affected by this issue.

Since 2004, the price of green coffee takes up significantly. This increase in foreign exchange earnings means that the wealth of a nation increases and counteracts an impoverishment growth.