North-South Trade and Export-Led Policies

An earlier paper in this journal [Chichilnisky (1981)] formulated a model of North-South trade where the South exports a Labor intensive commodity in exchange for industrial goods. The paper studied moves to new equilibria with higher levels of exports of the South and of industrial demand in the North. It was established that with abundant labor and technological dualism, such moves lead to more exports, but to lower terms of, trade, consumption and real wages in the South. This occurs within Walrasian stable and perfectly competitive markets. Sufficient conditions were also given for the South to improve its terms of trade, real wages, and consumption through an export expansion. This paper comments on several other papers written on these results, generalizes the earlier propositions and extends them to a larger class of economies which export labor-intensive products, but need not have abundant labor. lt gives a generalization of the earlier results on uniqueness and stability of the equilibria and reports also on recent econometric tests for Sri-Lanka and the U.K., and numerical simulations of the model