This North-South model of Schumpeterian endogenous growth combines a market,
productivity and knowledge effect. A set of various convergent and divergent growth
paths is derived that is much richer than in the literature so far. South-North
convergence based on North-South technology diffusion through intermediate
goods trade is guaranteed if the knowledge effect dominates the productivity
effect. Moreover, a larger Southern market expands the area of convergence
and can prevent divergence. Not only a larger Southern market size, but also a
higher Southern steady state growth rate benefit the North so that convergence is
desirable for both, the South and the North
