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 an-alyze 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 popu-lation 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