North-South Uneven Development and Income Distribution under the Balance of Payments Constraint

This study builds a North-South trade and uneven development model, and investigates the effects of changes in income distribution (the profit share) on economic growth rates of both countries. How a change in the profit share affects both countries' growth rates differs for the short-run equilibirum and the long-run equilibrium. For example, in the short-run equilibirum, an increase in the profit share of the North deteriorates the terms of trade of the South, and then, decreases the growth rate of the South. On the other hand, in the long-run equilibrium, an increase in the profit share of the North either increases or decreases the growth rate of the South through Thirlwall's law.