Trade (Global Inequality)

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Trade and global inequality
The issues
To what extent were the observed changes in inter-country and international inequality linked to the changing patterns of world trade ? Clearly, trade could have affected these inequalities only through its effect on economic growth in individual countries. A central issue, therefore, concerns the possible effect of trade on economic growth.
The view that trade stimulates growth is currently widespread among academic economists and is virtually conventional wisdom for the multilateral institutions such as the World Bank, the IMF, the WTO and the OECD. The theoretical arguments are well-known: trade promotes specialisation, allows realisation of economies of scale by expanding markets and facilitates diffusion of technology. Empirically, however, the proposition is not as yet well-established. (24) In broad terms, two lines of enquiry have been pursued in the literature. Some authors have tried to test if a higher trade-GDP ratio is associated with a higher income per capita. (25) The problem with this approach is that even if such an association is found, it does not say very much about the effect of trade on growth. Per capita income is an indicator of level of development and the fact that the countries which trade more are also more developed does not necessarily imply that trade causes growth. Other authors ha!
ve tried to examine the relationship between openness and growth. (26) But construction of appropriate indices of openness has proved difficult. Besides, openness is not the only determinant of trade volume or its growth. It is not the case that more open economies necessarily trade more and there obviously are instruments of trade promotion which have nothing to do with openness.
It must also be recognised that the proposition, by itself, does not say anything about the direction of change in inter-country and international inequality. We need to know, additionally, something abou...