Rigid Wage, Factor Immobility and Immiserizing Growth

Eden Siu‐hung Yu

The Economic Record, 1978, vol. 54, issue 3, 387-393

Abstract: In the theory of trade and growth, Bhagwati made an interesting contribution by demonstrating the proposition that growth can be welfare reducing even at constant terms of trade, whenever distortions obtain in an economic system. Batra‐Scully strengthened the Bhagwati thesis and derived the conditions for growth to be immiserizing at improved terms of trade in the presence of a wage differential. In the present analysis, we show that economic expansion in a country which is characterized by factor immobility and/or factor price rigidity may not reduce the country's real income at constant or improved terms of trade. Specifically, the Bhagwati theorem, and its stronger version proposed by Batra‐Scully, hold for an economy with a rigidity in factor price whether or not accompanied by factor immobility. However, growth will not lower welfare at constant or improved terms of trade if factor immobility is the only imperfection existing in the factor market.

Date: 1978
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