LDCs versus DCs: Trade and Growth

Abstract

Our aim is to analyse patterns of international trade and economic growth in connection with the North‐South income gap. The analysis is based on the familiar two‐factor, two‐sector, two‐country model adapted to the specific situation in question. Less developed countries, LDCs, are characterised by a low level of capital per head and a low productivity level compared with developed countries, DCs. Massive hidden or overt unemployment is supposed to be another feature of poor countries. The full employment equilibrium wage rate lies then below the subsistence level, which is characteristic of a labour‐surplus economy. By introducing a distortion in the form of a fixed real wage level in LDCs we can make use of the results obtained by Brecher (1974) with regard to the pure theory of international trade. The main difference from Brecher's analysis, apart from our specific interpretation, is the emphasis we put on economic growth. For that reason we have to consider a number of specialisation patterns which may emerge in the course of time. These and other links between trade and growth are dealt with in a number of papers in the economic literature. As Takayama (1972) shows, the main concern of the authors in this field is uniqueness and stability of equilibrium growth. Although we have something to say on the long‐term properties of our model, stability analysis will not be the central issue.

Citation

van de Klundert, T. and Kolnaar, A. (1982), "LDCs versus DCs: Trade and Growth", Journal of Economic Studies, Vol. 9 No. 2, pp. 36-50. https://doi.org/10.1108/eb002539