Has the increase in trade in developing countries increased wage Essay

Has the increase in trade in developing countries increased wage inequality between skilled and unskilled workers in the develop - Essay Example inequality and unemployment can be observed in developed countries leading many to think that a connection between the two developments exists. The Increasing Trade in Developing Countries Table 1 shows a comparative illustration of the growth rates in export between developed and developing economies between the periods 1980 to 1990 and 1990 to 1999. Note that the start of the rise in world trade, especially in developing countries, is not shown and instead started two decades later. The growth rate in export rose by more than twice for developing countries and almost doubled that in import rate. On the other hand, the rates for both export and import decreased in the second period for the developed countries. There are two explanations of the current rapid trade growth: technological and political. Technocrats believed that advances in transportation and communication made the world smaller and trade and easier, whilst political scientists believed that political factors such as th e GATT and efforts of developing countries at self-liberalisation in trade explain the growth. Krugman contends, however, that the current rise in global trade is simply a self-correction after it went down during the two world wars implying that the current level is comparable to that prior to said wars. 3 Table 1 Comparative Export/Import Growth, 1980-90, 1990-994 Growing Wage Inequality in Developing Countries Parallel to the rise in global trade particularly involving in developing countries is an observable growing wage inequality between skilled and unskilled workers in developed countries. In a data compiled by OECD, some highly industrialised countries showed a rising wage inequality from 1980 to 2005. Figure 1 shows the comparative rise of income inequality in the USA, the UK, Australia and Canada. The USA income data particularly shows a steep rise in income inequality. The UK, Canada and Australia also revealed a rising pattern but not as pronounced as that of the US. The re are developed countries, however, that do not exhibit this phenomenon such as in the cases of Nordic countries like Norway, Sweden, Finland and Denmark and some continental countries such as France, Italy, Germany and Netherlands. Figure 1 Income Inequality in Continental and Anglo Countries5 Income Inequality as a Consequence of Trade Growth in Developing Countries Some quarter hold the view that the rising income inequality in developed countries is underpinned by the trade growth in developing countries. This is purportedly because the rapid movement of goods and capital in the global market favour those who are in a position to use such opportunity whilst undermined those who are not. The expanding global trade has presented high capital entrepreneurs a wider field with which to expand their business whilst low income group who cannot compete are left behind.6 Relative to this, two theories are used to explain the impact of trade liberalisation on wage inequality in the indus trialised world. The Heckscher-Ohlin theory suggests that