Factor Accumulation, Tariffs and Immiserizing Growth

Abstract

International trade theorists recently have rediscovered a possibility, pointed many years ago by F.Y. Edgeworth, that growth in an open economy might actually decrease the welfare of the community. According to Bhagwati, immiserization could occur as the result of growth only in the presence of non-optimal policies. In the first case, where the terms of trade could be affected by the actions of the home country, the appropriate policy would be to impose an optimum tariff at all points in time. In the second case, where the country was so small that it could not affect the terms of trade, the optimal policy would be free trade. The purpose of this paper is to derive conditions for the occurence of immiserization due to factor accumulation, first in the sense of declining aggregate real incomes (section 1) and second in the sense of declining per capita incomes (section 2).