“Suppose a growing world with positive real income and economic growth. There are some lower income countries producing goods for basic necessities of life. If income of the poor people belonging to lower income countries increases, they move towards the luxurious goods like cars and air conditioners etc. Since, income elasticity of luxurious goods is positive i.e. as income increases; demand also increases. So, with the increase in income, demand of luxurious goods from abroad will increase because such types of goods are not produced domestically in lower income countries.”
Required:
Keeping in view the above scenario, what will be the effect of high demand of luxuries goods from abroad on the balance of payment of lower income countries?
NOTE: Give answer in JUST TWO LINES not more than that


Ans:-
Capital being wasted currently will negatively affect the natural law of income increase discussed earlier and will negatively effect the overall demand of luxury goods from abroad in the future.