Thirlwall’s law, uneven development, and income distribution

This study builds a North–South trade and uneven development model and investigates the effects of changes in income distribution (the profit share) on economic growth rates of both countries. How a change in each country’s profit share affects both countries’ growth rates differs for the short‐ and long‐run equilibria. For example, in the short‐run equilibrium, an increase in the North’s profit share deteriorates the terms of trade and then decreases the South’s growth rate. On the other hand, in the long‐run equilibrium, an increase in the North’s profit share either increases or decreases the South’s growth rate through Thirlwall’s law.