AN EXERCISE IN WORLDMAKING 2009 - ISS

11 The Interesting Facts Of The New Trade And Growth Theories 131
time spent in it. The influence of school and teacher quality on a student's
performance, for example in primary school, appears to be particularly
strong in poor countries, while in developed countries the impact
of these factors can be partly outweighed by the educational
background of a student's family. School education is only one part of
the stock of a country's human capital; the other part is training, which
both builds and adds on specific knowledge to the more general knowledge
imparted by school education. School education consists of basic
and advanced (basically tertiary) education, while training can take three
forms, namely apprenticeships (generally given to a young person who
learns by working alongside an experienced worker), on-the-job training
(giving further specific skills to a person who already has some knowledge
of the work) and formal training courses (giving new or refreshing
training and altering previously acquired skills, mainly to experienced
employees).
4 WHY IS THERE NO CONVERGENCE?
According to Krugman (1979: 476), the new trade theory assumes that
countries have identical tastes and technologies and there will be both
trade and gains from trade. Let us suppose that trade is opened between
these two economies at zero transportation cost. Symmetry will ensure
that wage rates in the two countries will be equal, and that the price of
any good produced in either country will be the same. The effect will be
the same as if each country had experienced an increase in its labour
force. There will be an increase both in the scale of production and the
range of goods available for consumption. Welfare in both countries will
increase, both because of higher real wage and because of increased
choice.
Moreover, since technology is assumed to be both universally available
and applicable, the levels of per capita GDP in different countries
will have a natural tendency to converge through a process of multiple
catching-up. But, it is a fact that there is no convergence process over
time. According to estimates by Pritchett (1995) the income ratio of the
richest (North) to the poorest (South) countries has increased dramatically,
from around eight in 1870 to over fifty in 1985.