Immiserzing Growth

It is a theoretical situation first proposed by Jagdish Bhagwati, in 1958. It is a situation in which a developing country's attempt to increase its growth potential through exports actually results in retardation of the potential. This is very much an exceptional situation. The country needs to export more to earn the foreign exchange to finance the capital imports that it requires to underpin domestic growth. If all its export effort is concentrated on its speciality, this could lead to an over supply of the product, resulting in a deterioration of the country's terms of trade. As a result, the country's foreign exchange earning will now buy fewer imports, and domestic growth potential will be impaired.