Technological progress, terms of trade and uneven development

ABSTRACT This article presents a modified version of Dutt’s two sector growth model, with the purpose of demonstrate the existence of an inverse relationship between decline in terms of trade and uneven development between North and South. It is shown that in the case where technological progress is reversible in the sense that firms in the North can revert to the adoption of technologies intensive in the use of primary goods manufactured in the South, this reversion been induced by the decline in terms of trade; this decline will be followed by a reduction, not by an increase, in the capital stock in the North relative to the capital stock in the South. This result is a generalization of Dutt’s model, which considers a situation where technological progress is irreversible.