Growth and trade: The North can lose

Several models of growth and trade conclude that a country grows more when trading with a less developed country. This article shows that this conclus ion depends crucially on the assuming homothetic preferences and/or having just two goods with respect to learning-by-doing. The article presents a mo del where the more advanced country (North) can be worse off after trading with a less developed country (South) because the demand pattern of the Sou th is biased toward Northern products with less learning-by-doing potential . Trade can worsen the welfare if the South is large with respect to the No rth and/or the preference for low-technology goods is high; necessary condi tions are that the preferences are nonhomotheticity and that the North expo rts at least two types of goods. In this context, the article studies the w elfare of North and South, separating the static from the dynamic gains fro m trade.