Price Of Labor, Terms Of Trade And Immiserizing Growth

The motivation for the country to join in the international trade is to get the trade gain. However, the terms of trade is often used to measure how much a country gained from the international trade. Generally speaking, when the terms of trade get worse, the less the trade gain from the international trade, when the terms of trade get better, the more the trade gain from the international trade.During the process of industrialization, more labor will be released from traditional department, with the employment promotion policies put into practice, Price of labor will gets lower. According international trade theories, the more low labor, the worse the terms of trade. When the loss more than the gain brings by economic growth, this growth is called immiserizing growth.With the reform and open policy and the speeding up of industrialization, many labors are released from traditional agriculture department, more and more students graduate from university every year, so more and more labor go into labor market. To promote employment, the government uses a "low wages, high employment" policy. Because our country has plenty of labor and our government uses employment promotion policy, so the price of labor in our country is very low. Our country has comparative advantage of cheap labor force, but this comparative advantage causes the terms of trade to get worse.To test the relationship between price of labor and the terms of trade, this paper Co-integration analysis and Granger causality test will be used in this paper. First, Unit root test will be used to test the two time-series data of price of labor and the terms of trade. Second is Co-integration analysis, Last is Granger causality test. The conclusion is that price of labor is granger cause of the term of trade, but the term of trade is not a granger cause of price of labor.Compare with the four conditions of immiserizing growth, the conclusion is that our country faces the threat of immiserizing growth. The comparative advantage of cheap labor force induce deterioration of terms of trade, the deterioration of terms of trade bring about the threat of immiserizing growth. To avoid the threat of immiserizing growth, promote the development of our economic healthy and quickly, ponder the "low wage, high employment" policy is necessary. Gradually increase the remuneration factor in the initial distribution of income.