Explain Carefully, with a Diagram, the Crucial Conditions for Immiserizing

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The Answer is Immiserizing growth can occur when a country's growth is biased toward the production of the good which the country exports. If the country is large enough, the additional supply of this good will cause the international price of this good to decline relative to the prices of other goods. This effect will be more pronounced the more inelastic is the foreign demand for this good. Further, the country will stand to lose more from the worsening of the terms of trade the more this country exports the good.. If the loss from the worsening of the terms of trade exceeds the gain from being able to produce more, the country experiences immiserizing growth-reduction in the well-being of the country in spite of the growth in production.

Immiserizing growth can occur when a country's growth is biased toward the production of the good which the country exports. If the country is large enough, the additional supply of this good will cause the international price of this good to decline relative to the prices of other goods. This effect will be more pronounced the more inelastic is the foreign demand for this good. Further, the country will stand to lose more from the worsening of the terms of trade the more this country exports the good.. If the loss from the worsening of the terms of trade exceeds the gain from being able to produce more, the country experiences immiserizing growth-reduction in the well-being of the country in spite of the growth in production. In the figure given above we see that a country is experiencing expansion in its capital endowment. Its production point shifts from S<sub>1</sub> to S<sub>2</sub>. Considering this to be a large country, its willingness to trade influences the international price ratio (terms of trade) and makes the price line steeper from P<sub>1</sub> to P<sub>2</sub>. Here the country experiences immiserizing growth. Its economic well-being declines as the consumption point shifts to a lower community indifference curve, from C<sub>1</sub> to C<sub>2</sub>.

In the figure given above we see that a country is experiencing expansion in its capital endowment. Its production point shifts from S₁ to S₂. Considering this to be a large country, its willingness to trade influences the international price ratio (terms of trade) and makes the price line steeper from P₁ to P₂. Here the country experiences immiserizing growth. Its economic well-being declines as the consumption point shifts to a lower community indifference curve, from C₁ to C₂.

Explain Carefully, with a Diagram, the Crucial Conditions for Immiserizing

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