ABSTRACT
In this chapter, the authors describe the bulk of their argument: in the presence of externalities generated by learning-by-doing mechanism and with differential products, free trade and competitive behavior tend to magnify small differences in the initial conditions. The remark that externalities may affect the dynamic evolution of comparative advantages was made by Krugman and Lucas. The research effort that underlies the simple model was motivated by a few undisputable facts. The authors present a general formalized version of the world economy and describe the dynamic process for expertise and the associated competitive growth path. They also present a simple linear model where such a dynamic is realized, albeit in a very extreme form. The authors provide an analysis of the conditions under which the general model produces the asymmetric outcomes people have in mind.
