International Division of Labor: Equal Distribution of Income

636 Words3 Pages
International division of labor can raises the incomes in depressed areas of Eastern and South-Eastern Europe and achieve a more equal distribution of income in the world. However, it cause many hardship in the immigration areas as it is not practical on a large scale. This problem can be solved by industrialization with prerequisite that the industrialization takes place in a large area in order to achieve the most optimal result. Basically, there are 2 ways of industrialization. The first way is own industrialization based on the “Russian Model” which do not have international investment. This approach build up all stages of industry such as light industry and heavy industry. At the end, the economy will built like a vertical industrial…show more content…
However, this method does not work well because the training workers may work for other firms after the training. Yet, this method is a good method from the point of view of the State because the social marginal net product is substantial than the private marginal net product. Besides, this method is costly and considered as capital investment. However, these are not the main factors in favor of this huge investment. In fact, the interdependent of different industries is the most important reason. Whole system of industries contribute more to the world output if compared to one industry only. Interdependent system also reduces the possibility of low sales and hence decrease the costs. This is a different case of “external economies”. There are 2 others types of “external economies”. The first one is the strictly Marshallian economies external to a firm within a growing industry. The second type is economies external to one industry because of the growth of other industries. The present institutions of investments do not have the benefit of external economies. There is no incentive for them to invest in investment which has high return in “social marginal net product”. In contrast, the key factor of investment is the profitable prospect of the investment. If the industrialization of international depressed area totally depend on the incentive of the entrepreneurs, industrialization will not proceed gradually. In fact, investment will
Open Document