Global Economics

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Recommended: Treories Of Comparative Advantages

1. Some economist criticized the comparative advantage principle, contending that it may have helped developed countries maintain relatively advanced technology and industry compared to developing countries. Can you explain how Trade based on Comparative Advantage could have helped maintain the income inequality among different countries globally? International trade is essential for developing countries in order to achieve sustainable growth. This flow of goods and services will significantly affect economic growth and decrease poverty. (Goldberg and Pavnick, 2007b). But poverty reduction has not been even among all of the developing countries, especially least developed countries (LDC) and the countries in sub-Saharan Africa that were not able to diversify their production and exports in order to maintain in the competition and they are facing low growth and persistent poverty. There has been reseaches done on the matter of income inequality and conflicting results has been shown. Debate is still going on that whether income inequality has been decreased or increased in the past two decades. (Sala-i-Martin (2006) and Atkinson and Brandolini, 2010) Even though this debate has been unsolved, income inequality remained high. According to figure 1 more than 80% of LDC’s population lives under $2 a day. In 2004, UNCTAD’s report demonstrated that in LDC’s with the most open and most close trade structure, incidence of poverty has been increased dramatically. On the other hand, in between, poverty has been higher in the countries that had liberalized their trade regimes in comparison to countries that liberalization was happening slowly. Six years later same study has been done by George resulted that complete liberalization cold really hurt LDCs and sub-Saharan Africa’s production and employment and it can also damage environment. Full liberalization of agriculture could lead to an increasing dependence on food imports and a rise in poverty in most places. According to Feenstra 2008, trade liberalization has a significant impact on income distribution by encouraging the adoption of skill-biased technical change in response to increased foreign competition, or to the increased globalization of production. Foreign Direct Investment (FDI) flows typically follow trade liberalization and that is why the skill differential widens. 2. Can governments shape or distort comparative advantage? Can such policies be labeled as “protectionists”? In your opinion did international trade destroy jobs in the US and reduce wages? Does Globalization affect job security? Yes they can. According to Lin in Lin article in 2009, governments are willing to help and support industries that may be profitable and efficient in the future in the “infant” phase, such as new technologies with a high potential of develop and growth.

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