AN EXERCISE IN WORLDMAKING 2009 - ISS

11 The Interesting Facts Of The New Trade And Growth Theories 133
convergence of income and the North’s monopoly of power in trade will
be explained below.
As mention before, the North-South model by Findlay (1980) states
that the North is the manufacturing center and the South is the primary
product center which is supported by Sachs and Warner (2001) who find
that the share of natural resources exports in GDP is negatively correlated
with growth, even controlling for changes in the terms of trade. In
a similar vein, Glyfason (2001) finds that natural resources wealth undermines
growth, stressing the impact of natural resources abundance on
educational expenditure and attainment. Moreover, the North and South
have asymmetric engines of growth. The North’s engine is internal, with
its own rate of capital accumulation, while the South’s engine is external,
with its exports of primary products to the North. When the North is on
an upswing, it imports more of the South’s goods generating higher rates
of growth in the South; when the North is on a downswing; it transmits
recession to the South by reducing its demand for Southern exports. It is
a model of unidirectional dependency (Darity and Davis 2003). Mayer
(1996:10) also explains that the process of convergence may be retarded
because in developing countries a large part of income needs to be spent
to satisfy basic needs and is therefore not available for investment.
The second model built by Krugman (1979) implies that the growth
rate of a region is positively related with its own capital stock and negatively
related with other region’s accumulated stock. The North, historically,
has higher stock of capital from colonial accumulation. The free
trade will lead to uneven development while the North will grow faster
in manufacturing sector than the South. When the North reaches the
upper limit, the South’s manufacturing sector can shoot to zero causing
manufacturing to disappear in the South to fully specialize in agricultural
sector. Here, the de-industrialization occurs. Stokey who also developed
a so called North-South trade model confirms that based on vertical
product differentiation and international differences in capital quality, the
South produces a low quality spectrum of goods; and the North, a high
quality spectrum. If human capital is acquired through learning by doing
and is stimulated by the production of high quality goods, free trade will
speed up human capital accumulation in the North and slow it down in
the South. The country that begins with a technological lead tends to
widen the lead over time (Bardhan and Udry 1999: 190). These arguments
are supported by Aghion and Durlauf (2007) who state that coun-