Falling Behind and Catching Up in a Model of North-South Trade.

This paper analyzes a formal, dynamic model of the center-periphery problem. The model features falling relative demand for agricultural goods, a higher rate of technical change in manufacturing, and a quality-differentiated manufactured good. Income differences imply a potential for intra-industry trade, while technical change generates product cycle type results. The main insight is that a closing of the North-South technology gap does not necessarily imply catching up, because of the falling relative demand for agricultural goods. The South catches up only if it exports lower-quality varieties of the manufactured good and closes the technology gap. Copyright 1996 by Blackwell Publishing Ltd.