Working Paper: CEPR ID: DP248
Authors: Hassan Molana; David Vines
Abstract: This paper examines equilibrium growth and stability in the world economy using a North-South model in which there is assumed to be surplus labor in both North and South at an exogenously determined level of real wages. The model allows for substitution in consumption between primary commodities and industrial goods in the North. It treats the cases of both surplus and scarce land in the South. In the case of an exogenous shock to the model, the North-South terms of trade may overshoot its equilibrium value and/or converge to this value along a cyclical path: there is no guarantee that the adjustment path is stable.
Keywords: north-south; terms of trade; overshooting; kaldor; world economy
JEL Codes: 111; 411; 711
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in southern output-capital ratio due to technical progress (O49) | deterioration in South's terms of trade (F14) |
| deterioration in South's terms of trade (F14) | overshooting of equilibrium value (D50) |
| terms of trade (F14) | converge to new equilibrium along a cyclical path (D50) |
| land scarcity (Q15) | terms of trade stability (F14) |