Modifying international trade theories: effect of globalization on income disparity
The influence of globalization on income distribution within developed and developing countries is still a matter of controversy. While international trade theory, in its most abstract formulation, implies that exposure to the world economy would encourage capital flows to poor economies, loosen financial constraints on investments, and promote economic growth and development, which would result in less income inequality, finding these effects has proved elusive. The paper presents an attempt to recognize the effects of globalization on income disparity by using more appropriate data, focusing on the relationship of the Globalization Index to the Income Distribution (measured by GINI Index) and the effect of the Human Development Index towards this relationship. In contrast to what one would expect from the existing theories, the research summarized that although the trade theories assumed correctly that the globalization has a decreasing effect on income disparity in developed countries, there is significant evidence that it conversely increases income disparity in developing countries, thus, modifying the conventional international trade theories considerably.
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