From Vanilla to Immiserizing Growth, Better Economy and Worse Living Conditions: A Case of Madagascar

This paper aims to explain and test Jagdish Bhagwati’s theory on Immiserizing Growth, focusing on export elasticity of demand. The Immiserizing Growth Hypothesis refers to the phenomenon when a country’s economic growth through international trade harms its citizens’ welfare because its Terms of Trade (TOT) deteriorate from increased exports (Bhagwati, 1958). Since then, other scholars have argued the theory lacks real-world consideration and finds almost no real-world case where the theory holds (Pryor, 2007). The core of Bhagawati's theory is not just the relationship between the Gross Domestic Product (GDP) growth and increase in the poverty rate, but also how the deterioration of TOT and increasing trade cause Immiserizing Growth. How does the elasticity of a country’s export sector affect that country’s TOT? Does Dr. Bhagwati’s causation still stand today? The paper's first section explains Bhagwati’s theory in detail and examines past publications and studies on Immiserizing Growths. Then, the study applies the approach to Madagascar’s economy from 1993 to 2008, excluding fiscal years 2002 and 2003 due to election violence. The case study hopes to establish causality between export supply inelasticity and the occurrence of Immiserizing Growth using empirical data. Lastly, the paper concludes with potential future case study plans and impacts.