North-South Asymmetry in Returns to Scale, Uneven Development, and the Population Puzzle

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This research develops a model of North-South trade and economic development. The model is consistent with two empirical facts : (1) the growth rate of income per capita differs across countries ; and (2) the relationship between the growth of population and that of income per capita differs for developed and developing countries. We assume that the North and the South are characterized by increasing-returns-to-scale and decreasing-returns-to-scale technologies, respectively. Real national income grows at the same rate in both countries along the balanced growth path owing to a terms of trade effect. However, real income per capita grows at different rates because of population growth differentials. In developed countries, the correlation between population growth and income {\it per capita} growth can be positive or negative while in developing countries, the correlation is negative.