Northern Stagnation and Its Effects on the South

This paper develops a structurally asymmetric North–South trade model to analyze the international consequences of stagnation and income inequality in advanced economies. Combining a Keynes–Kalecki North with a Lewisian South, the model shows how distributional shifts toward capital in the North can propagate internationally through terms-of-trade effects and generate uneven development. A key contribution is the reinterpretation of Kalecki’s degree of monopoly as a labor-market markdown associated with employer monopsony power. In the baseline model, higher markdowns reduce Northern demand and investment, deteriorate the Southern terms of trade, and slow Southern capital accumulation. Extending the model with a Bhaduri–Marglin investment function allows for both wage-led and profit-led growth regimes. The analysis demonstrates that the stagnationist-crowding channel systematically pushes mature economies toward wage-led growth and permits endogenous regime switching as markdowns evolve over time. The paper contributes to the literature on North–South relations by integrating stagnationist political economy, monopsony-based income distribution, and dynamic growth regimes within a unified framework.