AN EXERCISE IN WORLDMAKING 2009 - ISS

134 TISKA YUMEIDA
tries with low levels of capital stock do not grow faster than more advanced
countries. Thus, it tends increase the divergence. It is also explained
by van Leeuwen in his thesis in that the human capital stock can
explain why Japan was more successful in developing its economy than
Indonesia and India.
The model built by Dollar (1986) mentions that labour force expansion
in the South leads in the long-run to a decrease in the ratio of the
number of goods produced in the North to that produced in the South
and allows the flow of technology from the North to the South. If the
return per unit of capital is negative, it initiates a movement of capital
from the North to the South. An increase of labour supply in the South
initially increases the Northern wages by improving the North’s terms of
trade. Actually, this model refers to the convergence of growth. The
movement of capital from the North to the South continuously will
cause the capital-labour ratio in the North to fall and reduce wages in the
North, but it will still remain higher than wages in the South.
5 CONCLUSIONS
There are obvious relationships and similar views between the new trade
and the new growth theories. They both make economies of scale, learning-by-doing,
market imperfections and product variety a crucial part of
their models of international trade and long-run growth. These assumptions
lead to trade policies which protect the infant domestic firms from
foreign competitors during the early stages of the production process,
They also lead to accumulation of human capital which stimulates an increase
of a country’s productivity to upgrade its production and export
pattern by successively moving up the technology and skill ladder of
products and taking into account the dynamic demand potential of world
markets.
By taking the policies above, there is no doubt that there will be a
natural tendency to converge in leveled per capita GDP. However, the
opposite happens. We find that there is no convergence process over
time, and the income ratio of the richest to the poorest country has increased
dramatically. World’s inequalities become more important over
time, it still continues since the North’s monopoly of power in trade
does not change.