How Much Trade Can Affect Income Inequality

2743 Words11 Pages
Essay Subject: How much can trade affect income inequality? Since the end of the Second World War, the world has to deal with a second globalisation. Indeed, the measures taken with the General Agreement on Tariff and Trade in 1947 and the creation of the World Trade Organisation in 1994 have led to increase international trade between countries and it is interesting to wonder about the consequences of trade, and especially its consequences on income distribution. International trade consists in an exchange of goods and services through imports and exports. In The World Economy, Angus Maddison shows that on average, the amount of international trade is twice bigger than the production. So international trade is an important part of the economic activity and therefore, it has consequences on work thus on income. There are two ways to look at income inequality. In fact, we can look at the income inequality due to trade between countries, or within countries, that is to say focusing on the unequal repartition of income among workers. We can wonder whether trade has a positive or negative effect on income inequality and how that can be explained. 1 Trying to answer this question, we will first see whether trade is a good way to reduce the gap income between developing countries and industrialised countries. And then, we will focus on the effect of trade on income repartition within countries. The question of the involvement of developing countries in the international trade has stirred up debate since the end of the World War II. This debate opposes the classical and neo-classical economists to the economists from the third-worldism tendency. From one side, international trade permits development and so reduces income inequality. From the other side, the industrialised countries are accused of exploiting the developing countries and therefore
Open Document