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

This paper develops a model of North-South trade and economic development to analyze how an increase in the growth rate of population affects the growth rate of real income per capita. We assume that the North is characterized by an increasing-returns-to-scale technology while the South is characterized by a decreasing-returns-to-scale technology. The main results are as follows: (i) an increase in the growth rate of population in the South decreases the growth rate of its own income per capita; (ii) a rise in the growth rate of population in the North either increases or decreases the growth rate of its own income per capita depending on conditions; (iii) population growth in one country raises the growth rate of income per capita in the other country; and (iv) even the decreasing-returns South can experience a positive growth rate of income per capita if a continuous improvement in the terms of trade is larger than a threshold value.