Trade and Poverty in the Term Paper

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Say for instance that the central region of a large city is subjected to increased industrialization and major investments from foreign partners. This will increase the value of that particular region, will capture the interest of other investors and will increase the living standards of the workers and the population located in the vicinity of the new business venture. However, the marginal regions of the city, where the poorer population lives and works will remain unaffected by the central developments. The situation will as such generate relative poverty and will even further increase the income inequality.

Empirical Evidence

The empirical evidence is based on numerous features and state that no general rule can be established, but that the results depend upon numerous features such as "the choice of period, of the sample, and of proxies" (Bhagwati and Srinivasan). As such, the results are once again contradictory, with findings to support both theories. They can be summarized as follows:

The link between trade and growth is given by the evidence that no self sufficient economy has managed to register growth - This observed fact can also be explained with the aid of basic economics concepts. Starting with Adam Smith and later on David Ricardo, it has been suggested that countries could register growth through the manufacturing and exporting of those items for which they possess a comparative advantage. And since autarkic countries fail to engage in such operations, it is only natural for their economies to stagnate.

Measured in the GDP of the globalizing and non-globalizing countries, studies between 1977-1997 reveal superior growth of the non-globalizing countries, implying as such that an economy can grow and expand without basis of international trade - to better explain this statement: countries not engaged in globalizing activities have managed to register superior levels of growth than the countries engaged in globalizing activities.

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This conclusion seems rather unrealistic and it was probably retrieved based on numerous particularities of the studied regions, which do not give the audience the possibility to generalize the results. "The choice of period, of the sample, and of proxies, will often imply many effective degrees of freedom where one might almost get what one wants if one tries hard enough!" (Bhagwati and Srinivasan)

Rapid growth based on international trade and the reduction of the government's intervention and protectionist policies was highly obvious in India and China and supported a massive reduction of poverty between 1980 and 2000 - This proven fact clearly supports the theory that, if properly managed, growth through international trade will support countries in reducing their poverty rates.

Implication in international trade aided Vietnam to reduce their poverty rate from 75% to 37% in ten years (Dollar, 2001) - Also a practical proof of the supported aid offered by globalization in reducing poverty

Poverty reduction in developing countries was only possible through implication in international trade and the receiving to foreign direct investments (Dollar, 2001) - This is once again true as it restates the theory of comparative advantages in support of growth and poverty reduction. Furthermore, it emphasizes on the role foreign investments play in the country's economic development.

As a direct consequence of the mentioned theoretical and empirical evidence, it can easily be said that practice shows that international trade generating growth is vital for any developing country which desires to reduce their poverty rates. And the theory according to which globalization increases poverty is only explained by the authorities' incapability to integrate the poor in the development process.

Reference:

Bhagwati, J., Srinivasan, T.N., Trade and Poverty….....

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