Riedel, James
March 1984
Economic Journal;Mar84, Vol. 94 Issue 373, p56
Academic Journal
The paper is divided into two parts. The first examines the theoretical basis of the trade engine theory. The objective is to identify the assumptions which establish developed country growth as the main driving force of LDC exports and growth. The mechanics of the trade engine are shown to hinge on extreme assumptions about LDC export supply and demand parameters. The second part of the paper assesses the empirical relevance of the trade engine theory, considering in particular the implications of far-reaching changes in the composition of LDC exports over the last two decades. These changes, it is argued, have significantly weakened any mechanical link that might once have existed between the export growth of many LDCs and prosperity in the developed countries. The quantitative relationship which Lewis believes to have remained the same over a hundred years, and takes as the cornerstone of this thesis, is shown to be largely a statistical artifact, applicable if at all to a diminishing number of developing countries which export primarily raw materials.


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