World Demand as a Determinant of Immiserizing Growth Tamara Todorova American University in Bulgaria

Literature Review The concept of immiserizing growth Bhagwati (1958), “Immiserizing Growth: A Geometrical Note” Bhagwati et. al. (1998) Johnson (1955, 1967) Krugman and Obstfeld (2000) Empirical investigations of immiserizing growth Uzawa (1969), Hamada (1974), Brecher and Diaz-Alejandro (1977) Hamada and Iwata (1984) Sawada (2003) The “adding-up” problem Akiyama and Larson (1994) Imran and Duncan (1988) Hallam et al. (2004)

Table 1. Import demand elasticities for selected commodities as estimated by Imran and Duncan (1988) Commodity Short-run Import Demand Elasticity Long-run Import Demand Elasticity Cocoa -0.17~ -0.25 -0.34~ -0.43 Tea -0.17~ -0.3 -0.38 Coffee -0.15~ -0.19 -0.23 Natural rubber -0.27 -0.76

Table 2. Own-price demand elasticities for selected non-traditional agricultural commodities as estimated by Hallam et al. (2004) Non-traditional Agricultural Commodity Own-price Demand Elasticity Asparagus -1.69 Avocados -2.67 Cabbages -1.11 Green Peas -1.14 Green Beans -0.7 Green Corn -0.9 Pineapples -1.35 Mangoes -0.84

Theoretical Grounds of Growth Production and consumption abilities with growth Biased growth Cloth-biased growth and declining terms of trade Elastic and inelastic world relative demand Oil production and price elasticity of demand for oil Expanding consumption abilities with elastic demand

Data and Evaluation Procedure on Brazil’s Exports of Coffee

Figure 1. Production and consumption abilities of a country producing two goods Food Production Isovalue Line Cloth Production

Figure 2. Biased growth Food Food Production Production PPF2 PPF1 PPF2 Cloth Production Cloth Production a) Growth biased toward food b) Growth biased toward cloth Production Production

Figure 3. Biased growth with constant relative prices Food Food Production Production Cloth Production Cloth Production a) Growth biased toward food b) Growth biased toward cloth

Figure 5. Cloth-biased growth and declining terms of trade

Figure 6. Terms of trade effects of cloth-biased growth a) Elastic relative demand b) Inelastic relative demand

Table 3. Average annual percent changes in the terms of trade Source: International Monetary Fund, World Economic Outlook, May 2001 Region 1983-1992 Advanced countries 1.1 Oil-exporting developing countries -7.5 Non-oil-exporting developing countries -0.6

Figure 7. Economic growth with elastic relative demand Food Production Cloth Production

Figure 8. Changes in relative supply in the inelastic and elastic part of the demand curve

Table 4. Import demand elasticity facing major suppliers of coffee as estimated by Imran and Duncan (1988) Short-run Import Demand Elasticity Long-run Import Demand Elasticity Brazil -1.2 -4.9 Colombia -2.4 -10.5 Cote D’Ivoire -5 -25.5 Kenya -14.8 -73.7 World -0.17 -0.23

Conclusion Immiserizing growth is less likely to occur than is generally predicted. It will occur only when for a given increase in world relative supply of a given commodity relative demand for it is inelastic. This would likely be the case when there are no close substitutes for the commodity in the importing countries or globally.

World trade gives ample examples of situations when world demand for particular goods is elastic. As a result of that their exporters have become relatively wealthier, not poorer.