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Edmar L. BACHA*
Universidade de Brasilia, Brasilia, Bmzil
Emmanuel’s view of th: Center-Periphery trade relation is linked tc, a classical literature in
trade and development theory which starts from the wulDrkof Prebisch, Singer and Lewis. A very
simple general equilibrium Ricardian trade model is formulate1 tu deal with terms of trade
determination in the context of class conllict both i:l the Cenier and the Periphery. The model
focuses attention on the effects of technical progress and changes in income distribution on
employment levels in the Periphery, where labor surplus conditions are assumed to prevail.
1. Introduction
‘For an ortha&?x synthesis, see Samuelson (1975). Ev.ans (1976) evaluates Emmannel’s
ctrntribution from a nco-Ricardian perspective.
*Mathematical workings are collected in the appendix.
EL. Bac:;u, Unequal exchange 3.21
goods. The labor input is required one period before output is produced;
wages are ad:Janced to the laborers by a class of czpitalasts, who control all
market related activities in the economy. Profits are earned as a uniform
mar’k-up rz’i: over the wage fund advanced for the duration of the
production yrocess.3
EytcriRbrium prices are defined as follows :
P=Rw/q, (1)
: = R”w*/q*, (2)
“These restrictive assumptions are adopted only to simplify the argument. They could be
comiderably relaxed without. affecting the results. For example. thr: pro.duction functions could
be of the neoclassical type: Q:=F(A.L,KJ=L.F(.~, K/L), where ,4 is a time dependent labor
augmenting technical factor, atld the capital stock, K, is made of the sz:me substance as final
output, Q. The price equations wou!d have to be changed to accommodate the fact that prflfitb
w4ld be earned as a proportion not of tie wage bi!l b;:: ,-f the capital stock. With net savings
equal to zero, the results of the text would hold with only Jne qualmcation, i:amely. lai>or
productivit,y, Q/L., would n,ot bl: a cmstant but a negative function of employment ievels. H’i:h
positive net savings, condi:io% for equilibrium growth paths wculd have to be investigated
before performing the exerlcisl: ~3 the text. These conditions might be 01’:;ome imeresl but tbley
are n.ot directly relevar,lt to the problems analyzed in this paper.
,322 E.L. Bacha, Uaequal exchange
L=L(P,q,tf% (4)
good, our chosen numeraire.” This leaves us with five variables in three
equations. Note that eq. (2) establishes a unique relationship between w* and
R*; once one is given the other one i:; known. In the following we will
explore the consequences for the Periphery of fixing one or other ‘factor
price’ in the Center. One of w* or i?*, plus 1’eriphery employment, t, and
the terms of trade, P, exhaust the number of pg3ssible dependent vari’ables in
the system. We need an additional equation for R, the profit facto: in the
Periphery. We consider two cases. In the first one, R is determined by 52
profit maximization process in the Periphery. This opposes the interests of
the capitalist class in the Periphery to those of the consumers in the Center.
Ws: baptize this as the .Prebisch-S&zer case, since the specification follows
frc#m the consideration emphasized in the Center-Pciiphery literature: of the
nmeteen-fifties.5 In the second case, perfect zapital(ist) mobility is assumed
and the profit rate in the ‘:‘eriphery is equated to that of the Center.
Naturally, this is the Em,nanu~i case..
3. Prebisch-Singer m’odel
Consider the determination of a profit-maximizing value for R in the
Periphery export industr;/. Treat L as the decision variable and rewrite (4)
with P as a function of L, for given q, 4 *. Total revenue is P(L, q, q*)Lq and
total cost is wL. Take the derivatives <ofthese functions with respect to L and
Izquate marginal revenue to marginal cost to obtain
P = R (c)w/q, (5)
where
R(e)=&+
- /
and where e is minus the price elasticity of the equiilibrium labor demand
function. It can easily be stiown ;Jlat e-r1 +q* - 1 >O (by assumption).
Naturally, at the profit maximizing position, cz 1.
From eqs. (2), (4), (5) and (fj), the v.blues of R* (or \v*), L, P and R can be
cletermined, given w* (or R* ), w, q and q* (see fig. 1).
4This assumption is comister t with an asymmetric view of the Center-Periphery trade relation
in which cultural domination b.r the Center enhances the psychosocial value for the Peri )hzrjl of
the Center exiport good. For a two-sector Center-Periphery trade mode! where Periphery wa_:es
ae set in terms of the sLbs”strraee good, see Brunt (1977).
jThe classica: references are Prebisch (1950. 1959) and Smger (1350. 1975). An 111portant
historical exarnple is the Brazilian coffee valorization scheme which dates back to 1906 _ ;urtado
(1?63)].
X4 EL. &cha, Unequalexchange
(a)
_--
1 w
(W
Fig. 1
In fig. la the ‘factor price frontier’ (2) relates w* to R*. The outcome of the
distribution process in the Center is irrelevant for the determination of the
variables of interest for the Periphery (under the strong assumption that
income distribution shifts do not affect per capita goods demand). The
marginal cost ratio w/q is plotted in fig. lb. Given w, we can read, m fig. lc,
the level of emplloyment at which marginal cost equates the marginal reT:enue
-vhich is associated to the ‘average revenue’ price-employment relation. The
maximizing terms of trade is that which corresponds to such employment
level. Given this relative price, we can construct a curve corresponding to (5),
in fig. b, showing R as the value of its slope.
E. L. Bacha, Unequal exchange 325
4. EmmaauceI model
Part of the argument in Emmanuel (1969) concerns the ::ffects on the
Periphery of Center *capital mobility’, which gives rise to an elq.~alization of
profit rates across c’ountries. The equation system of section 2 now is
completed with the rule:
1: =k . . (7)
61n al] fo~lo\~ingcompararivestatic exercises, the labor demand elasricity. c. is ‘I :ated as a
constant, I 3 simplify the argument.
‘Notice that immiserization oc:curs in spite of the fact that the Periphery j; practicing an
‘optimum trade polncy’ (since profits are maximized at all times). On hodox trade policies are of
little help when the intern;atiorual divisioriof labor condemns the Periphery to ?pccialize in the
production of tb,e ‘wrong’ type of good
326 EL. &&a, Unequal exchange
Eqs. (1j, (2), (4)vand (7) are sufficient ‘to determine the values of P, R* (or
w*j, L and R, for given values of q, q*, w and w*’(or R*) (see fig. 2).
In fig. 2a, the factor price frontier (2) determines the value of w* (or R*)
for given values of R’ (or w*) rrnd q*. Fig. 2b is a 45degree line reflecting
assuxrption (7). Given the profit factor R, and an institutionally determined
w, P is fixed in fig. 2c, in accordance to eq. (1). Once P is known,, L is
obta.ined in fig. 2d, for gi,ven TV,
q*. This corresponds to eq. (4).
I
R
I
(b)
I
!
I
P P
I
I
I
I
I\
I
1;’
I
L=i.(p,q,cp
___----_-_ I
L
P= Rwfq
1 pl L
/
-
R
(d) @)
Fig. 2
EL. Bachu, Unequal exchange 327
Hi’C‘otethat the global wa,_;e fund \v* + WL (directly linanced by capitalists in a Ricardian
world) goes up when w* inPrI:ases. # background story would have the capit::listu dividing their
wealth between idle balances (nor appearing in the model) and the wage fund. ldlc ha!ances are
a residual item, moving in and Ol;i VIA the produ&e process according to the needs of finance,
in turn a function of the wagf: hargam rind the cmploymcnt determination procl:ss I am
indebted to an anonymous referee for poantirLg out that this ciew of the financial process is not
consistent with modern pxtfolio mxiagemcnt theory.
328 EL Bacha, Unequal exchange
working class in the Center fully shares in the benefits of rhe productivity
increase.
5. conclusion
This paper has produced a simple general equilibrium model to explore
certain aspects of the ‘unequial exchange’ literature pertaining to the Center-
Periphery trade relation.
The model focuses attention on the expansion of wage-labor employment
as the strategically relevant variabk liar the working class in the Feriphery,
on the theory that under instituti,yrally fixed wage rates, terms of trade
determination is the concern of ttlt dominant class in the Periphery. The
latter, in the Emmanuel version of the model, is the saye class that rules in
the Center.
A we%known result of orthodox terms of trade literature is rediscovered
in the sense that technical progress in the ;Periphery is found to be against
the interests of the working class there, if the Johnson impoverishment
condition obtains. Technical progress in the Center, with an independent
ruling class in the Periphery, benefits the Periphery workers, Under a single
wo:ld ruling class, technical progress in the Center is certain to favor
Periphery workers only if the Center working class manages to fully share in
the benefits of increased productivity.
Class conflict leadiag to an increase in the real wage of Center workers
does not afTect the Periphery w2a1 the two capitalist systeins are ‘delinked’.
When a single profit rate rules everywhere, the interests of the proletariat in
the Periphery are enhanced by the economic conquests of the workers in the
Center.
L= -(yI+tj* - 1 p--mji-o*ij*,
E.L. Bacha, Ilnrqucl exchanp 329
where
(Clearly, the signs of the partial derivatives are the same as ehe signs of the
corresponding partial log derivatives. j
P= -4’. 1 (10)
L= - (a-e)tj.
If 6>e, e<O.
(111
(12)
b=R. (13)
Substitute p=i* from (ll)-(13) in (81, with G=O, and obseru’e (9) to get
If c7*<e, e<O.
330 E.L. Bacha, Unequal exchange
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