Krugman Imperialism
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Journal of Development Economics 8 (1981) 1499161. North-Holland Pubhshing Company TRADE, ACCUMULATION, AND UNEVEN Dk VELOPMENT* Paul KRIEMAN Sloan School L$ Management, Cambridge, MA 0213Y. USA Received Aprii 1980, final version July 1980 This paper develops a two-country model of capital accumulation and growth where the industrial sector exhibits increasing returns to scale. It shows that ‘uneven development’ IS a necessary outcome in such a model: an initial discrepancy in capital-!abor ratios between the two countries will cumulate over time, leading to the division of the world into a capital-rich. industrial region and capital-poor, agricultural region. Which region take?; on which role depends on ‘primitive accumulation’; that is, on which region starts with more capital. If capital is mobile internattonally. the model can given rise to a two-stage pattern of development a first stage where trade is the engine of growth in the leading country. and a second in which foreign investment takes on that role -- w;:i~h is reminiscent of the HohsonLenin theory of imperialism. 1. Introduction1 Why is the world divided into rich and poor nations? Most critics of thy international economic order would argue that there is s me fundamental unequalizing process at work. The argument that there is an inherent tendency fcr international inequality to increase is often referred to as the doctrine of ‘uneven development’. This doctrine is usually assooiatcd with radicals such as Baran (1957), Frank (1967), and Wallerstein (1974), but similar arguments have also been made by such less radical authors as Myrdai (1957) and Lewis (1977). This paper sets out a model which attempts to present the essentials of the doctrine of uneven development in schematic form. The model portrays a two-region world in which the industrial sectors of regions grow through the accumulation of capital. Given one crucial assumption ---- that there are external economies in the industrial sector - a small ‘head start’ for one region will cumulate over time, with exports of manufactures from the lead@ region crowding out the industrial sector of the lagging region. This process, I would argue, captures the essence of the argument that t;rade with deveiS3ped nations prevents industrialization in less-developed countries. In addition to helping synthesize and clarify the arguments of ti’leorists of uneven development, the model set forth in thi, paper is of some technical *This paper was stimulated by discussions with Lance Taylor. 0304-3878/81/0000-0000/$02.50 ic! North-Holland Publishing Company
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Transcript of Krugman Imperialism
JournalofDevelopmentEconomics8(1981)1499161.North-HollandPubhshingCompany TRADE,ACCUMULATION,ANDUNEVENDkVELOPMENT* PaulKRIEMAN SloanSchoolL$Management,Cambridge,MA0213Y. USA ReceivedAprii1980,finalversionJuly1980 Thispaperdevelopsatwo-countrymodelofcapitalaccumulationandgrowthwherethe industrialsectorexhibitsincreasingreturnstoscale.ItshowsthatunevendevelopmentISa necessaryoutcomeinsuchamodel:aninitialdiscrepancyincapital-!aborratiosbetweenthe twocountrieswillcumulateovertime,leadingtothedivisionoftheworldintoacapital-rich. industrialregionandcapital-poor,agriculturalregion.Whichregiontake?;onwhichrole dependsonprimitiveaccumulation;thatis,onwhichregionstartswithmorecapital.Ifcapital ismobileinternattonally.themodelcangivenrisetoatwo-stagepatternofdevelopment a firststagewheretradeistheengineofgrowthintheleadingcountry.andasecondinwhich foreigninvestmenttakesonthatrole--w;:i~hisreminiscentoftheHohsonLenintheoryof imperialism. 1.Introduction1 Whyistheworlddividedintorichandpoornations?Mostcriticsofthy internationaleconomicorderwouldarguethatthereissmefundamental unequalizingprocessatwork.Theargumentthatthereisaninherent tendencyfcrinternationalinequalitytoincreaseisoftenreferredtoasthe doctrineofunevendevelopment.Thisdoctrineisusuallyassooiatcdwith radicalssuchasBaran(1957),Frank(1967),andWallerstein(1974),but similarargumentshavealsobeenmadebysuchlessradicalauthorsas Myrdai(1957)andLewis(1977). Thispapersetsoutamodelwhichattemptstopresenttheessentialsofthe doctrineofunevendevelopmentinschematicform.Themodelportraysa two-regionworldinwhichtheindustrialsectorsofregionsgrowthroughthe accumulationofcapital.Givenonecrucialassumption----thatthereare externaleconomiesintheindustrialsector-asmallheadstartforone regionwillcumulateovertime,withexportsofmanufacturesfromthe [email protected] process,Iwouldargue,capturestheessenceoftheargumentthatt;radewith deveiS3pednationspreventsindustrializationinless-developedcountries. Inadditiontohelpingsynthesizeandclarifytheargumentsoftileoristsof unevendevelopment,themodelsetforthinthi,paperisofsometechnical *ThispaperwasstimulatedbydiscussionswithLanceTaylor. 0304-3878/81/0000-0000/$02.50ic!North-HollandPublishingCompany 150Y.K rugman.nude,nccumularion,andWICWF dmhqwn Pnl interest,Conventionaltradetheoryhasoftenbeencritici&ft>r beingstatic andforassumingconstantreturnstoscale.Themodeldnvelol3edheremeets theseobjections,Mhilecontinuingtomakeuseofthetoolsoforthodox theory.Oneofthesurprisingthingsthatemergesfromthe~lsratysisir; that thetheoryofunevendevelopmentfitsinverywellwiththe~~k~l~~r-~~~;~ theoryoftrade. Thepaperisorganizedinfoursections,Section2laysoutthestructureof themodel.Thebasicanalysisofthemodelsdynamicsis~rriedoutin section3.Section4considerstheroleofinternationalinvestment,andshow: thatthemodelnaturallygivesusetoatwo-stagepatternotdevelopment whichbearsastrikingresemblavxtoaHobson-Leninviewofimperialism, Finally,section5 extendstheanAysistoathreeregionworld. 2.Theyasic model Consideraworldconsistingoftworegiolls,NorthandSouth.These regionswillbeassumedtobeidenticalinthesensethatte&nologi~land behavior4relationshipsarethesame.Tosharpentheanalysis,Iwillalso assumethattheregionshaveequallaborforces,andthattheselaborforces doragrowovertime.Thuswehave L,=L:: = L. Eachregionwillbeableloproducetwogoods,amnnufacturedgoodM andanagriculturalplod!lctA,andtotradeatzerotransportationcosts, Therewillthusbe&Isingleikorldpriceofmanufaeturdgoodsmtermsaf agriculturalproducts,P,,.Agriculturalproductswillbeproducmlbylabor alone;wewillchooseunitssethatoneunitoflaborprcdduce~oneunitof agricultu.ralgoods. Thegrowthsector,however,ismanufacturing.Manufacturingwillrequire bothcapitalandlabor.Itwillbeassumedthat,@rnrkrpointofC&W ~j arr ia&oiidutrl firn~,theunitcapitalandlaborre@remenrsarefixed,Inthe aggregate,however,unitcapitalandlaborrequirementswillnotbeecrnstant; instead,ineachregiontheywillbedecreusinpfunctionsoftheregi~~ns aggregatecapitalstock.Lettingr N,c~. tN. ts betheunitcapitalandlabor requirementsinNorthandSouthrespectively.WChave 152P. Krupnan,Trudeaccrcmufarion,rindune~endevefnpmenr outofagriculture.WecandefineK,,,bynotingthatY(K,,,).K,,,/c(K,,,) -L. .- Considernextthedistributionofincome.Therearetwocases:thecasein whichatleastsomelaborisusedinagriculturalproduction,andthecaseof completespecializationinmanufacturing. Ifsomelaborisusedin agriculture,thistiesdownthewagerate,whichis1intermsofagricultural goods,1/P,intermsofmanufactures,Wecanthendeterminetherentalper unitofcapitalasaresidual.Forsimplicity,letusasume(thoughitisrjt essential)thatcapitalgoodsareproducedbylaboralone,i.e.,weinclude themaspartofagriculturaloutput.Thentherentalperunitofcapital, measuredinagricultural(orwage)units,isalsotheprofitrate,andwehave p)N =(P,, -lN).!cN.(5) wherepN,psareprofitratesNorthandSouth.SincecandD arefunctionsof thecapitalstocks,wecanalsowrite(5)asapairofreducedformequations (6) wherei~!iP,~ and?p/c?Karebothpositive. ?Shen aregioniscompletelyspecializedinmanufacturing,(6)nolonger holds.InsteadtherateofprofitisdeterminedinKaldorianfashionbythe requirementthatsavingsequalzero,ifthereisnoforeigninvestment,orby therateofprofitonforeigninvestmentifthereissuchinvestment.Inthe lattercasethewagerateisresiduallydetermined. ToclosethemodelweneedtospecifyI hedemandside.1 willmaketwo strongassumptionsforthesakeofeasyalgebra;theconclusionsofthemodel couldbederivedunderweakerbutlessconvenientassumptions.First,saving behaviorisclassical:allprofitsandonlyprofitsaresaved.Second,afixed proportionpofwageswillbespentonmanufactures,1 -ponagricultural goods. Thesavingsassumptionmeansthat,if thereisnointernationalinvestment, ther.tteofgrowthofthecapitaistockineachregionwilljustequaltherate ofprofit. K,K,= px,k,,!K, = ps. (7) Itiseasytosee!mwthiscangiverisetoanunequalizingspiral.Suppose weareatanyearlystageinthedevelopmentoftheworldeconomywhere bothregionsarenon-specialized,butNorthhasaccumulatedmorecapitai thanSouth.Thensincetheregionswillfaceacommonrelativepriceof manufactures,by(6) therateofprofi\andtherateofgrowthwillbelargerin theb*egionwhichalreadyhasmorecapital.Thisisthebasisforthe divergenceanalyzedinmoredetailbelow. P.hrugmun.Trudtz.uccumkttinn,uttdutwendtwloptttettr153 Therelativepriceofmanufacturedgoodswillbedeterminedbyworld demandilndsupply.Smceafractionpofwagesisspentonmailufactures. providedthatl;otlrcountriesproducesomeagriculturalgoodswehav: w_~4,-I- 41=A-LN+ 4.(8) whichcar!berewristenas ThisgivesusarelationshipbetweenthetwocapitalstocksandP,,,:itis apparentthatP,,isdecreasinginbothcapitalstocks.NotealsothatK,and K,et4tersymmetrically.sothatwhereK,=K,.CP,,iK,:= ;P,,iK,. Fit,&.wecancombine(6),(7),and(9)toexpresstherateofchangeeach regionscapitalstockasafunctionofthelevelsoibothcapitalstocks: I&/X.= g(K,,K,k R,K,=g(K,.K,). (10) Weknowth;lttheeffectofanincreaseinthuc!th~rregionscapitalstock mustbetoturnthetermsoftradeagainstmanufacturesandthusreduce profits:sog?O,thetraceis positive:whileif l+ -I-I$EI~~0,thedeterminantisnegative.Thusanyinterior equilibriumis unstable. References Baran,P..1957. Thepoliticaleconomyofgrowth(MonthlyReviewPress, NewYork). Chacholiadcs.M..1978, Internationaltrudctheoryandpaliev(McGraw-Hill.NewYork) Frank,A-O.,1967, CapitalismandunderdevclopmtmtinLaiinAmarica(MonthlyR~iewPrms, NewYork). H&son.J.A.,1902, Imperialism:Astudy (Nisbct,London). Lenin,V.I.,1939.Imperialism.thehigheststageofcapitalismflntcrna~itianul Dublishcrs.New York).
