Immiserizing growth with a general equilibrium model

• Main Authors: Chia, Kai Xuan, Soh, Chang Li, Yong, Ian Qi Shen
• Other Authors: Kang Minwook
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Social sciences::Economic theory::International trade
• Online Access: http://hdl.handle.net/10356/62487
• Institution: Nanyang Technological University

The motivation of this paper comes from Bhagwati’s seminal work in 1958. He constructed an example of the case of “immiserizing growth” in a two-by-two static analytical framework. Immiserizing growth is an economic phenomenon that could exist when the growth of a country’s endowment leads to a country becoming worse off due to the deterioration of its terms of trade, offsetting the beneficial effects of economic growth. Our contributions are as follows. First, we show that such an example could be constructed with two smooth constant elasticity of substitution (CES) utility functions. Second, we establish the conditions for the existence of immiserizing growth in a general equilibrium framework. Third, we examine the relationship between the elasticity of substitution and the deterioration of a country’s terms of trade when immiserizing growth happens.