Wednesday, February 20, 2008

International Trade: The Culprit of Global Income Divergence?

I am not totally convinced. But the argument is here:

The last 200 years saw a ‘Great Divergence’ in per capita income, as some countries industrialised while others remained less developed. This column attributes the divergence to international trade. Comparative advantage encouraged industrialising economies to invest in human capital, while non-industrial economies experienced population growth.

In international trade, or any trade for that matter, some traders may get a larger share of the gains, while others get a smaller cut of the gains. The bottom line, however, is that trade generates gain for both sides. For otherwise, there will be no incentive to trade in the first place.

What the scholars of the research result reported above worry about, the concerns of the how the gains from trade are distributed to the parties engage in trade, should come secondary to the more fundamental concern of how could we generate further gains from trade to start with. No?

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