Trade And Income In Developing Countries
A dynamic model to measure the effect of bilateral trade on income inequality within a sample of 65 industrialized countries (DCs), between the periods 1980-99. The model was built by Naumelli, Shanker, and Kumar (eds.) in the early 1970s. This paper presents the results of a detailed analysis of the impact of bilateral free trade agreements on the inequality of income. The research is based on studying the effects of bilateral Uruguay-US free trade agreement on income disparity.
The authors find that the Uruguay-US agreement significantly reduced the income gap in both the United States and India. Inequalities in per capita income were concentrated in the United States and India, though the reductions were more significant in the United States. The reductions in India’s per capita income were much less than the decrease in the United States. Namely, Shanker and Kumar (eds.) argue that the degree of economic growth experienced by countries receiving trade flows from advanced countries is primarily determined by the nation’s domestic policies’ nature and quality.
Trade and income inequality are intimately connected to political institutions. Trade policies affect how developing countries can use the foreign capital they receive to build economic infrastructure, combat corruption, and improve public services. An approach that favors one domestic industry over another can hurt investment and output. Trade liberalization can increase employment opportunities in developing countries, especially in rural areas. However, the growth of international competitiveness is also a critical factor in determining future development in developing countries.
Trade policies promoting economic growth in a developing country may discourage foreign direct investment (FDI). Foreign direct investment can help a developing country to achieve its long-term growth objectives. Still, the global community needs to assist developing nations in facilitating capital through appropriate trade policies. As a result, private international financial institutions’ role becomes critical in helping developing country governments pursue policies that will make the most of the foreign investment they receive. The World Trade Organization Agreement on Trade-Related Aspects of the Multinational Trade Treaties provides a helpful mechanism to help developing nations negotiate better access to international trade.
Trade and income trends are very sensitive to political developments in developing countries. The sudden downturn in the textile industry in South Korea in the early 1990s, for example, led to a surge in imports of textile products from the United States and other advanced countries. The drop in textile prices helped South Korean manufacturers reduce manufacturing goods’ costs, which increased their competitiveness in the global market.
Trade and income patterns also depend on political attitudes and the direction in which national policies are developing. A rapidly growing developing country in Southeast Asia, for example, may be interested in pursuing economic growth and combination into the global trade system. However, neighboring countries like Vietnam and the Philippines may block such a policy through protectionist measures. Similarly, a Middle Eastern country eager to participate in the international market can find itself isolated if its domestic policies obstruct such integration. A significant emerging country like Brazil can benefit from improved access to technology and finance if its domestic policies to promote the development and open the economy to foreign investment.
Trade and income patterns
Trade and income patterns are also influenced by political stability and economic conditions in an expanding developing country. A nation with ailing democratic processes and a weak sense of national identity can struggle to maintain stable trade relations. Political turmoil can wreak havoc on a nation’s growth process and retard its progress towards modernization. In these situations, through multilateral organizations such as the World Trade Organization, donor nations can play a positive role by providing support for the advancement of a developing country.
Trade and income patterns are likely to change rapidly in the coming years. The causes that have shaped the evolution of international trade in past centuries are unlikely to change radically. Technological advancement, rapid urbanization, and political stability provide critical drivers for sustainable development. Natural disasters, climate changes, and changing consumption patterns are likely to affect how developing nations pursue industrialization. Ultimately, the ability to develop countries to achieve sustainable development depends mainly on their domestic policies.