Immeserizing growth as first introduced by Professor Jagdish Bhagwati refers to a situation where there is an increase in economic activity which has an effect of a fall in the real standards of living (real output of an economy), that is, the results of a country becoming poorer in respect of welfare. The increase in economic activity can be associated with larger labor inputs, i.e. human labor or increased labor hours, capital which can be in the form of machinery, technology and other resources which portray an opportunity cost. Therefore, the deterioration may be so large that it offsets the positive wealth effects, thus causing a net decline in the welfare of a nation.
Immeserizing growth can be explained by the following diagram:
AA1 is the primitive PPC
T1 is terms of trade
B is production equilibrium
C1 is consumption equilibrium and T1 is tangent to Community Indifference Curve I2
The production of importable commodity increases as a result of growth and higher relative prices.
Consumption of importable commodity decrease due to proportional increase in the price.
We see that there is an increase in output, but for the home country however the terms of trade become worsened such that consumption point shifts from the higher indifference curve to the lower indifference curve.
This results in the welfare level shrinking after growth, and this signifies immersing growth.
Immeserizing growth as studied, depends on three conditions;
First the nation must be driven to export.
Secondly there should be a larger impact on the good’s price resulting from these changes in exports and there should be a decline in export earnings resulting from the rise and inelastic foreign demand for the exports.
Thirdly the nation must be dependent on exports highly which also must be a larger proportion of GNP.
In relation to Botswana, we can say that Botswana highly depends on exports precisely diamonds. In other words it is clearly driven to exporting diamonds, as it dominates the economies of scale of Botswana. An increase in the supply of a low quality good e.g. raw diamonds which are unprocessed does not give much value thus driving the diamonds prices down (immeserizing growth).
I would suggest a developing country such as Botswana to ensure equal distribution of income and also begin to train more people so as to increase skilled labor which can result in the production of goods that it normally imports like commodities which are made with a lot of skilled labor. It can therefore produce high quality goods such as improving the quality of diamonds by processing it into jewellery and also the need to diversify the economy by not just depending on export of diamonds but venture into other sectors in the industry.