The Relation Between Globalisation and Inequality in Poor Countries

Globalisation is one of the biggest steps for the progress of the entire world, because this business model offers many advantages as faster transportation and cheaper communication to enhance economical productivity connecting all countries in one system.

India's dirt-poor farmers

India’s dirt-poor farmers, from New York Times.

The comparative advantage theory

In the beginning of the globalisation, economists expected that this new economical model may affect the inequality regarding poor countries to reduce the wealth’s inequality, based in the comparative advantage theory. This theory explains that every nation has a specific production of sources that they can get advantage, for example, poor countries are specialised in the productions of primary goods requiring unskilled workers while rich countries are specialised in professional services requiring skilled employees. According to the theory, the unskilled workers would be high demanded getting wage boosts while skilled employees don’t, however, this is not the case of the theory’s result.

The economist’s fail prediction

The principal reason which explains this contradiction, it’s because rich countries are shifting the production process in poor countries. Multinational firms which are placed in poor countries, often employe skilled workers and according with one survey, they pay wages 40% higher than local firms, affecting the national production. Also unskilled workers have fewer opportunities because they cannot boost their performance or even be more coveted, provoking as a result the rise of inequality index.

The future of poor countries’ problem

Recently there are more theories which are trying to explain why there are high index levels of inequality in poor countries and what are the possible solutions to stop this problem in the future. Many of the economists argued that growing inequality was inevitable in the early stages of globalisation, because people who had a little money to invest could get benefits along the time, whereas those who weren’t able to invest simply couldn’t to grow economically. However, to solve this problem depends in the future of economic development and redistribution of demands in poor countries.

If you want to dig deep: Growing inequality is not inevitable (October, 2012)


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