The Role of Trade

Abstract

There has been a ‘second phase’ of trade between developed countries and developing countries. In place of relying on primary products, the developing countries now export low-skill manufactures. But although this has benefited the average person, it has hurt unskilled workers in developed countries and contributed to the growth of ‘SAT.That is the proposition. What is the theory behind it? What is the evidence for it? The theory is based on a modern version of the classical economic theory of comparative advantage: if two countries specialize in products where they are least inefficient, it is possible for the citizens of both countries to be better off than if no trade had occurred. The key word is ‘possible Developing countries have a comparative advantage in unskilled-labourintensive goods because their populations, at the present time, contain large proportions of unskilled people. Therefore in these countries unskilled wages are comparatively low. Therefore exports of the corresponding products are competitive. But in exporting goods containing the results of comparatively low unskilled wages, the South also ‘exports’ her own wage structure. Unskilled wages in the North will come down and/or there will be more unskilled nonemployment. So although skilled workers in the North gain from both higher wages and cheaper imports, unskilled workers may gain nothing at all, or in fact may be absolutely worse off.KeywordsExchange RateComparative AdvantageSkilled LabourUnskilled WorkerUnskilled LabourThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.