International competition, income distribution, and North-South uneven development under the balance of payments constraint

Hiroaki Sasaki and Ryunosuke Sonoda

Structural Change and Economic Dynamics, 2022, vol. 62, issue C, 9-23

Abstract: This study builds a North–South trade and growth model and investigates the effect of a change in each country’s income distribution on economic growth in both countries. The North is assumed to be a demand-led Kalecki-type economy with the markup pricing rule and the principle of effective demand, while the South is a supply-led Lewis-type economy with surplus labor and hence, the real wage is fixed. Furthermore, it is assumed that international competition influences the markup rate of North firms. The following four main results are obtained. First, in the short-run equilibrium, an increase in the bargaining power of capitalists of the North increases (decreases) the economic growth rate of the North if the North exhibits profit-led (wage-led) growth. Such an increase in the bargaining power of capitalists of the North necessarily decreases the economic growth rate of the South. Second, in the short-run equilibrium, an increase in the profit share of the South decreases (increases) the economic growth rate of the North if the North exhibits profit-led (wage-led) growth. Such an increase in the profit share of the South can either increase or decrease the economic growth rate of the South. Third, in the long-run equilibrium, an increase in the bargaining power of capitalists of the North decreases (increases) the economic growth rates of the North and the South if the North exhibits wage-led (profit-led) growth in the short-run equilibrium. Fourth, in the long-run equilibrium, an increase in the profit share of the South increases (decreases) the economic growth rates of the North and the South if the North exhibits wage-led (profit-led) growth in the short-run equilibrium.

Keywords: North–South trade; Thirlwall’s law; Uneven development; Income distribution (search for similar items in EconPapers)
JEL-codes: F10 F43 O11 O41 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: International Competition, Income Distribution, and North-South Uneven Development under the Balance of Payments Constraint (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:62:y:2022:i:c:p:9-23

DOI: 10.1016/j.strueco.2022.03.012

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