Trade Raises Mean Incomes and Reduces Global Inequality

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Credit: REUTERS/Aly Song.

The last decade has saw an increase in international trade, which many countries have deemed a boon and benefit because it has raised incomes and cut inequality.

However, the consistent debate about the benefits of trade tied to the integration of the global marketplace at times, the world economic forum states, fails to realise that incomes across the globe have been raised by the reduction of poverty and global inequality dramatically.

Some countries have experienced a rise in inequality, but this is not the result of global trade but rather the result of the need for “stronger safety nets and better social and labour programs, not trade protection.”

“The 2001, US-Vietnam free trade agreement reduced poverty in Vietnam by increasing wage premiums in export sectors, spurring job reallocation from agriculture, forestry and fishing into manufacturing, and stimulating enterprise job growth.”

In the current global market, with countries feeling the need to turn inward, it has been predicted that many countries would turn outward and increase trade and reduce the obstacles to trade for the decrease in global inequality for the reduction of poverty and the general rise of mean incomes around the world.

“A study of 27 industrial and 13 developing countries finds that shutting off trade would deprive the richest 10 percent of 28 percent of their purchasing power,” the WEF said, but the poorest 10 percent would lose 63 percent because they buy relatively more imported goods.”

The share of world GDP based on merchandise trade grew about 30% to 50% from the periods of 1988 to 2013. This has been known as a “period of rapid globalisation, average income grew by 24% globally.” At the same time, the global poverty headcount ratio went down from 35% to 10.7%.

As well, the income of the lowest 40% of the world went up by as much as 50%. In addition, the growth in export is associated or positively correlated with greater gender equality; if a country has lower exports or a reduction in the growth of exports, then, by application, there will be greater gender inequality or a greater gender divide in developing countries.

For example, abandoning existing agreements in the Americas would have particularly large negative welfare effects in countries like Mexico (4 to 9 percent), El Salvador (2 to 5 percent), and Honduras (2 to 5 percent), according to early research at the World Bank.

Of the gains that have been gotten for women, reduction in global integration would reduce the gains seen in developing countries for greater gender equality. With trade and globalisation, there will be winners and losers in terms of the most economic gains.

However, there will be a net increase in the amount of money and funding that the average citizen will have in a country that is more integrated into the global marketplace. The World Economic Forum reports that there has been countries in Latin and South America that have shown wage distribution equalisation, such as Brazil or the reverse such as Mexico.

In India, poverty decreases in the more rural areas of the country when they have greater trade liberalisation. Between the periods of 1990 and 2010, which is noted as earlier as a rapid era of globalisation, the Gini index measuring inequality in the United States went from 43 to 47, and in Denmark from 31 to 26.

“Consider why. US workers concentrated in communities which face high volumes of Chinese imports have experienced fewer jobs and falling wages,” the World Economic Forum said, “And yet, the US Trade Adjustment Assistance (TAA) program falls short of the challenge of helping people get back on their feet.”

With the national economies that “created losers,” the redistribution policies might be “needed” in addition to various policies to better equip workers to benefit from the opportunities offered by trade.

These include more better social protection and safety-net programs and non-trade protectionist policies.

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About Scott Jacobsen 317 Articles
Scott Douglas Jacobsen is the Founder of In-Sight: Independent Interview-Based Journal and In-Sight Publishing. Jacobsen works for science and human rights, especially women’s and children’s rights. He considers the modern scientific and technological world the foundation for the provision of the basics of human life throughout the world and advancement of human rights as the universal movement among peoples everywhere.

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