North-South trade and basic needs

This paper examines the role of the international market in mediating North-South relations and analyzes how the market works in distributing the gains from trade. It is argued that the international market does not always provide an adequate engine of growth for the South if that region specializes in labor-intensive products. The South's export sector must be carefully balanced with other domestic sectors to avoid harming the economy as a whole. Any excessive expansion of labor-intensive exports or raw materials, even if accompanied by an expansion in international demand, may affect domestic markets and the distribution of income in the South in ways that conflict: with sustainable development, especially when this is measured in terms of the satisfaction of basic needs for the majority of the population. The conditions under which this may occur are quite general. They are consistent with perfect market behavior but require that important features of the North-South relationship, including differential characteristics of technologies and factor markets in the two regions, be introduced into the analysis. The paper suggests alternatives to export-led policies, which balance domestic and international sectors of the South's economy and are conducive to sustained development and the satisfaction of basic needs. An appendix provides a model of North-South trade that has been econometrically tested for the trade between Sri Lanka and the UK. The appendix also includes a computer program for simulating the model and sample computer runs that reproduce, in practical terms, the model trade policies discussed in the paper.