The Distribution of Gains between Investing and Borrowing Countries

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. International trade is of very considerable importance to underde-veloped countries, and the benefits which they derive from trade and any variations in their trade affect their national incomes very deeply. The opposite view, which is frequent among economists, namely, that trade is less important to the underdeveloped countries than it is to industrialized countries, may be said to derive from a logical confusion -very easy to slip into-between the absolute amount of foreign trade which is known to be an increasing function of national income, and the ratio of foreign trade to national income. Foreign trade tends to be proportionately most important when incomes are lowest. Secondly, fluctuations in the volume and value of foreign trade tend to be pro-portionately more violent in that of underdeveloped countries and therefore a fortiori also more important in relation to national income. Thirdly, and a fortissimo, fluctuations in foreign trade tend to be im-mensely more important for underdeveloped countries in relation to that small margin of income over subsistence needs which forms the source of capital formation, for which they often depend on export surpluses over consumption goods required from abroad. In addition to the logical confusion mentioned above, the great importance of foreign trade to underdeveloped countries may also have been obscured by a second factor; namely, by the great discrepancy in the productivity of labor in the underdeveloped countries as between the industries and occupations catering for export and those catering for domestic production. The export industries in underdeveloped countries, whether they be metal mines, plantations, etc., are often highly capital-intensive industries supported by a great deal of im-ported foreign technology. By contrast, production for domestic use, specially of food and clothing, is often of a very primitive subsistence 1The author wishes to acknowledge help and advice received from many friends and colleagues; in particular Mr.