Uneven Development of the World Economy: from Krugman to Lenin

Transcription

1 Working aper 11 Uneen Deelopment of the World Eonomy: from rugman to enin Hiroshi OHIHI Graduate hool of Eonomis, yoto Uniersity February 9

2 Uneen Deelopment of the World Eonomy: from rugman to enin Hiroshi OHIHI rofessor of yoto Uniersity, Japan The ollapse of the Amerian eonomy has reealed the fundamental weight shift of the world eonomy. In my understanding, it is the uneen deelopment that enin s Imperialism defined, and proed its rightness. To be learer, firstly, this paper reiews rugman s model of uneen deelopment between outh and orth. eondly, we show that he has misunderstood enin s theory, and enin s theory is more realisti rather than rugman. I. rugman s Uneen Deelopment 1. rugman s Uneen Deelopment In the Western eonomis, orth-outh diergene of the world eonomy has been explained by Riardo s theory of omparatie osts between industrial ountries and agriultural ountries, or explained by Heksher-Ohlin-amuelson model with apital-intensie ountries and labor-intensie ountries, or sometimes by Dutt s learning-by doing model with muh more experiened ountries in prodution and less experiened ountries Dutt Besides them, howeer, here we fous on rugman 1981 beause he also refers enin model. He has shown that muh more industrialized ountries umulatiely aumulate apital than less-industrialized ountries under the assumption of inreasing return of tehnology. First, we show his model. rugman s model has two ountries, that is orth whih is expressed by suffix and outh whih is expressed by suffix. Here, he assumed both ountries hae same amount of labor fore, and produe two goods, a manufaturing good and an agriultural produt A. He also assumed a single world prie of manufaturing goods in terms of agriultural produts, m. In other words, a single world prie of agriultural produts was set to unit. anufaturing prodution was assumed as a funtion of apital input and labor

3 input, and its tehnology is inreasing return, that is < <, where letting, be the unit apital and labor requirements respetiely, and them, resulting the following relationship. / / 1 Agriultural produts were assumed to be produed by labor alone, and he hose units so that one unit of labor produes one unit of agriultural goods. If so, an additional assumption of full employment led him to the following agriultural prodution funtions; A A In addition, labor fores are assumed to onsume agriultural goods alone, and their saing ratios are zero whih means unit labor ost to be one. Under aboe mentioned setting-up, profit rates of the manufaturing setors beame / / / / Beause and are funtions of the apital stoks, these equations an be rewritten as follows;,, where,, beause <, and, beause. rugman inestigated its orth-outh relationship by using aboe setting up. His first ase is with international trade but no international apital moement. In this ase, eah ountry s apital aumulation an be shown as & / & / 3 where X & dx / dt, and beause, & / & /. It means apital aumulation in the orth is faster than in the outh, but to draw dynamis in the - diagram, he ontinues to analyze. For this purpose, he hanges assumption to that 1μ perent of workers inome is spent for manufaturing goods. In this ase, supply demand balane of manufaturing goods beomes

4 μ μ whih was rewritten as μ 4 Finally rugman ombined, 3 and 4, and introdued & g, & g, 5 / / While this is the basi relations to draw - dynamis, we need the diision lines whih diide areas into and inreasing areas and deeasing areas. These lines are, and by the appendix A, rugman introdued following relations; and They show that both of lines the line < < and is steeper than the line are downward delining and as shown in figure 1. < < < < Figure 1 Therefore, - dynamis beomes as shown in figure 1, where the intersetion of

5 both of lines and is on the 45 degree line. It illustrates that if orth-outh relation starts from A where orthern apital stok is larger than outhern apital stok --, situation moes to upper-right wards and then turn to B. It implies that orthern manufature grows faster and finally outh will be speialized in agriulture. That is the rugman s theory of uneen deelopment whih international trade leads to een if there is no international apital moement.. rugman s enin odel In the Western eonomis, rugman type of dynamis whih inreases orth-outh differene is alled as diergene, but reality of the world eonomy at least in the East Asia is opposite. owest growth is in Japan, and the highest is China. The world eonomy is also similar in the sense that the U and European eonomy hae ollapsed and the enter of graity of the world eonomy is going to shift to the biggest deeloping ountry, that is China. Howeer, rugman annot understand suh reality. Furthermore, rugman also misunderstood enin s theory of Imperialism. In his understanding, enin and Hobson wanted to illustrate orth-outh relations when apital moes internationally in the seond stage of internationalization of the world eonomy. He understood orretly to here, but mistook from here beause he wanted to understand enin by using his model whih now we saw. Beause rugman hanged his model to the model with perfet apital mobility, the orbit of and stiks to the ertial axis as shown as A B in figure. It is beause all the apital moe quikly to the higher profit ountries under the assumption of perfet apital mobility, and then reahes at AX whih implies that orth speializes in manufaturing goods. In AX, whih is shown as B, resere army in agriultural setor disappears it means reahing at turning point in terms of deelopment eonomis, and wages rise to push out apital to outh by pressuring orthern profit rates to lower leel than in outh. Therefore, from here, world situation starts to moe to C from b as shown in figure by the international apital moement. In other words, first A B proess proeeds keeping speialization in manufaturing setor pushed by free trade, and then in B C proess, international apital moement ours to outh. In this way, rugman s model has been understood to express two stages of internationalization; the stage of free trade and imperialist stage. Furthermore, rugman illustrated enin s theory of labor aristoray in B C proess in the sense that orthern wages are higher than outhern in this

6 proess. max B C A max Figure II. enin s Uneen Deelopment 1. enin s Uneen Deelopment As we saw, some points of enin s theory was illustrated by rugman s model. Howeer, I am skeptial that rugman ould understand and express enin s basi idea. We must know what enin said. Following sentenes are from his book Imperialism; As long as apitalism remains what it is, surplus apital will be utilized not for the purpose of raising the standard of liing of the masses in a gien ountry, for this would mean a deline in profits for the apitalists, but for the purpose of inreasing profits by exporting apital abroad to the bakward ountries. In these bakward ountries profits are usually high, for apital is sare, the prie of land is relatiely low, wages are low, raw materials are heap. The export of apital is made possible by a number of

7 bakward ountries haing already been drawn into world apitalist interourse; main railways hae either been or are being built in those ountries, elementary onditions for industrial deelopment hae been reated, et. The need to export apital arises from the fat that in a few ountries apitalism has beome "oerripe" and owing to the bakward state of agriulture and the poerty of the masses apital annot find a field for profitable" inestment.... enin 1917 Therefore, we an identify two points whih are different rugman s understanding, That is; 1 In rugman s model, outh annot be industrialized after reahing at C in figure, but enin did not hae suh a limitation. enin said that bakward apitalism an oertook adaned apitalism, and laims that it also has a right to be redistributed the olonies. Of ourse, the adaned apitalism does not agree with this laim, and therefore this onflit between the bakward apitalism and adaned apitalism beomes a world war. That is, in the theory of enin s imperialist war, bakward apitalism s oertaking adaned apitalism is ritial. enin said that the reason why bakward apitalism s profit rate is low is its sareness of apital. It means ounter-orrelation between profit rates and apital stok, that is <. Therefore, we must assume diminishing return of apital to build enin s model. It is ompletely opposite to rugman s model setting.. International Trade and Capital oement under Diminishing Return of Capital Therefore, we inestigate international trade and apital moement under diminishing return of apital. First, we onsider the ase with no international apital moement but trade like in

8 figure 1. That is, on the line and the line, we an introdue < whih means both of lines are downward-sloping like in figure 1. Howeer, steepness of both lines beome opposite to the rugman ase see appendix b. That is,. Therefore, here we an draw figure 3 whih shows two ountries situation tend to be equalized at the intersetion of both lines E. It means that international trade makes bakward ountries to ath up adaned apitalism under diminishing return of apital. eond, we turn to onsider the next ase with international moement, but beause here we assume diminishing return of apital, beomes positie and then < when. Therefore, apital moe from orth to outh until will be equalized to. If the speed of this apital moement is unlimited, situation of both ountries always on the forty-fie degree line in figure 3. Howeer, if this speed is limited, dynamis path beomes speeded up from the ase without apital moement, but that path is basially same as figure 3. Anyway, our new assumption of diminishing return of apital leads the world to onergene; that is derease in disparity between outh and orth. Furthermore, in the last part of the path shown as *, dereases while inreases. It means the deindustrialization in orth whih is the present world situation; rapid and radial weight shift of the world eonomy. rugman ould not explain this phenomenon, but this enin model an explain ompletely.

9 < * < < < Figure 3 III. Historial Change from rugman Case to enin Case 1. From Diergene to Conergene by the Change of Tehnologial Charateristis Howeer, suh athing-up proess of the bakward ountries were not general before 197s een in Asian IE, and before 1985 een in outheast Asian ountries. enin said The export of apital is made possible by a number of bakward ountries haing already been drawn into world apitalist interourse; main railways hae either been or are being built in those ountries, elementary onditions for industrial deelopment hae been reated, et. Therefore, the ompletion of the soial infrastruture is the preondition for the eonomi deelopment, and without it, bakward ountries annot start to ath up. A tehnologial harateristi of suh infrastrutures is generally inreasing return of apital, and it is assumed by rugman model. Howeer, after the ompletion of suh infrastruture tehnologial harateristis an turn to diminishing return of apital. In this sense, here we ould understand that uneen deelopment of the post-war world among the U, Japan and other Asian ountries must be explained first by inreasing return of apital and then by diminishing return of apital. aybe, eery ountries experiene inreasing return of apital until a ertain stage of deelopment, and then go to the stage of diminishing return of apital. uh kind of tehnologial hange is widely known as -shaped prodution funtion. In this

10 sense, suh kind of hange of tehnologial assumption is reasonable. 1. -shaped rodution Funtion in Asian-aifi Countries and the Change of Tehnology Furthermore, this kind of tehnologial hange an be introdued, if we assume that the general path of the eonomi deelopment has three phases; that is 1 low eonomi growth due to apital onstraint, high eonomi growth by dissolution of the onstraint, 3 low eonomi growth due to labor onstraint. Under this assumption, these three phases an be illustrated A B phase, B C phase and C D phase in figure 4 respetiely, and then marginal produtiity of apital rise in the first phase, highly stable in the seond phase and fall in the third phase, if this eonomy has stable Cobb-Douglas prodution funtion YA α β and αβ 1, < α<1 see figure 5. D C A B Figure 4 1 rugman does not always laim diergene. In the seond hapter, rugman1991a said there is a kind of produt yle, in whih emergent new industries initially flourish in loalized industrial distrits, then disperse as they mature on the industrial setor. Howeer, its reason to say so is too muh agglomeration of labor fore, too speialized intermediate goods, spilloer of the knowledge. All of them are not tehnologial harateristis. It is same in its third hapter in whih derease in transportation ost makes agglomeration yle of industries, that is agglomeration dispersion agglomeration. Furthermore, rugman1991b assumed international free moement of labor fore, and studied the effets of transportation ost and ratio of interregionally moable industries. Howeer, this analysis does not hae historial perspetie.

11 Y B C A D time Figure 5 To show this relationship, first, let me introdue Y profit rate αa α 1 α 1 α β 1 αa. It means that marginal produtiity of apital is a dereasing funtion of apital-labor ratio / and an be shown as the slopes of the lines whih onnet the origin and eah point in figure 4. Therefore, we an understand A B proess as a rising phase of profit rate where lower speed of apital aumulation than labor supply makes apital-labor ratio to derease in figure 4, 3 and then makes the profit rate to rise. imilarly, we an understand C D proess as a falling phase of profit rate where lower speed of population growth rate than apital aumulation makes apital-labor ratio to inrease, and then makes the profit rate to fall. In the B C proess, beause apital-labor ratio is stable, profit rate is also stable. uh relationship is ompletely same with -shaped prodution funtion whih ould be drawn in Y- diagram. 4 Barro 1991 also noted that lower apital-labor ratio in deeloping ountries makes higher marginal produtiity of apital, and then leads higher growth rate than in deeloped ountries. 3 An estimation of marginal produtiity of apital in pre-war period in Japan by the hapter seen in Inada, ekiguhi & hoda 199 was negatie in light industries, and non-negatie in heay industries. Therefore, relatiely higher weight of heay industries rather than light industries might lead to inreasing return of apital in this period. 4 tritly speaking, to regard this A B proess as a period of diminishing return of

12 Therefore, we must note that the harateristis of the tehnology determine the world system. This idea is surely materialisti, and ompletely onsistent with enin s theory whih laims amount of aumulated apital ompared with labor fore i.e. apital-labor ratio determines profit rate and then leads international apital moement. enin s laim that wage leel is lower in bakward ountries also an be understood as a result of apital-labor ratio by introduing the following equation; Y wage rate βa 1β α β 1 βa 1β. This equation shows that sareness of apital results lower wage rate. Therefore, enin s theory of uneen deelopment an be understood as a theory of return of apital, but more preisely as a theory of long trend of apital-labor ratio. Then, our last problem is whether there is suh kind of historial trend of marginal produtiity of apital, and in fat, we ould obsere it in the Asian aifi seen ountries shown in figure 6 and 7. These two figures are based on our own estimation of apital stok whih is shown in Ohnishi 1998 and Resaa 1996, and extended. As shown, the hilippines, Thailand and Indonesia hae A B phase and B C phase, while UA, Japan, orea and Australia basially hae C D phase. 5 In this sense, aboe-mentioned hypothesis ould be regarded as realisti. IV. Conlusion This paper has first reiewed rugman s understanding on the effet of international trade, apital moement and then enin s theory. Howeer, we ould see rugman misunderstood enin s basi point, and this misunderstanding ame from his tehnologial assumption of inreasing return of apital. Therefore, we has hanged this assumption to diminishing return of apital, and introdued following impliations; 1 enin s theory of uneen deelopment ould be modeled by the assumption apital, we should assume as a funtion of time t and t. In this ase, beause β β 1 1α β 1 A α β A, is dereasing as time proeeds A d d d d <. Therefore, <, and beause of the aboe assumption dt d dt dt d t, must be negatie. It means inreasing return of apital. d 5 tritly speaking, Japan, orea and Australia also hae short A B phase and B C phase in the early stage of post-war period.

13 of diminishing return of apital. Tehnologies of the Asian aifi ountries are moing from inreasing return of apital to diminishing return of apital, and by this transition, this area has turned toward onergene. 3 All of these analyses proed that tehnology is the key fator to determine the world. It is a part of historial materialism. Referene Barro,R.J.1991, Eonomi Growth in a Cross etion of Countries, Quarterly Journal of Eonomis, ol.16, pp Dutt,A..1986, Vertial Trading and Uneen Deelopment, Journal of Deelopment Eonomis, o., pp Heksher,E.195, The Effet of Foreign Trade on the Distribution of Inome, in Readings in the Theory of International Trade, ed. By Amerian Eonomi Assoiation, pp.7-3. Inada, Y., ekiguhi,. and hoda,y.199, The ehanism of Eonomi Deelopment: Growth in the Japanese and East Asian Eonomies, Clarenton ress, Oxford. rugman,.1981, Trade, Aumulation, and Uneen Deelopment, Journal of Deelopment Eonomis, o.8, pp rugman,.1991a, Geography and Trade, IT ress. rugman,.1991b, Inreasing Returns and Eonomi Geography, Journal of olitial Eonomy, ol.99, no.3, pp enin,v.i.1917, Imperialism, the Highest tage of Capitalism, First published in 1917 in pamphlet form, but here ited from enin Internet Arhie 5 Ohnishi,H.1998, Rise-and fall of the aifi Rim Countries: truture and imulations of the yoto Uniersity aifi Rim odel, yoto Uniersity ress, in Japanese. Urasaka,J.1996, Estimation of Capital toks and Other Variables in Japan, United tates and AEA for the YAC odel, The Researh and tudy, o.1, yoto Uniersity Eonomi oiety, pp.5-85, in Japanese. AEDIX A rugman Case 1 First, we hek the sign of the slope of the line. Here, / means. By ombining this equation with equation

14 4; then we hae μ. 6 Then, by totally differentiating the both sides of this equation, we hae d d d Therefore, d d where this denominator and the seond member of this numerator are positie beause <. Therefore, if is not so large 6, <. It means that 6 rugman 1991 assumed < instead of our assumption,, and made the lines and downward-sloping. These two assumptions are basially same. The right side of rugman s inequality is positie, beause 1, < μ, and < μ. On the other hand, the left side of rugman s inequality is. Therefore, rugman s inequality beomes <.

15 the line is downward-sloping. Then, we turn to hek the slope of the line. ame as the former ase, d d d Therefore, d d. Here, this denominator an be positie, if we again assume that is not so large. In this ase, <. It means that the line is also downward-sloping. 3 Then, we ompare the slopes of the lines and. Z Z d d d d Z Z Z 7 where Z, and in this ase, the first member of the right side of the aboe equation is negatie, beause its denominator is positie and its numerator is negatie. The seond member is also negatie, beause its denominator is positie and its numerator is negatie due to the negatie sign of It an be rewritten as. It is same with our assumption that is not so large.

16 . Therefore, the right side of the aboe equation is negatie, and it results that the line is steeper than the line. The figure 1 illustrates this relationship. 4 Then, we inestigate whih side of the line is or <. For this purpose, first we assume as follows. Here,, beause. By ombining the aboe inequality with equation 4; then we hae μ. 8 Here, beause μ is onstant, our problem whih side of the line is beomes to whih side of the line makes the right side of inequality 8 is smaller. To know that, by assuming again that is not so large, and differentiate the right side of inequality 7; then we hae Therefore, the inequality 8 and are satisfied in the area under the line, and ie ersa. 5 ame as the former ase, we inestigate whih side of the line is or <. For this purpose, first we assume and then we introdue μ. 9 By assuming again that is not so large, and differentiate the right side of the aboe inequality; then we hae

17 Therefore, also in this ase, the inequality 9 and are satisfied in the area under the line, and ie ersa. AEDIX B enin Case 1 With respet to the slope of the line, we replae the former assumption of inreasing return of apital <, < with the new assumption of diminishing return of apital,, and then we hae < without any additional assumption. It means that the line is downward-sloping. ame as the aboe ase, the line beomes downward-sloping. 3 Then, we ompare the slopes of the lines and in this ase. The first member of the right side of the equation 7 is positie, beause both of its numerator and denominator are positie, and the seond member is also positie, beause both of its numerator and denominator are also positie. Therefore, in this ase, the line is steeper than the line differently from the former ase. This relationship is illustrated in figure 3. 4 In this ase, with any signs of and, we hae,,. Therefore, under the line,, and under the line,, and ie ersa.