Trade and Income Inequality

693 WordsJan 26, 20183 Pages
As trade takes place, living conditions and economic growth must be the ultimate goal. Trade and economic growth that does not establish a reduction in poverty can generate problems that did not exist before. If rapid growth is accomplished at the expense of misdistribution of resources, then it will create social tensions or class warfare. Rapid growth has been shown in different countries that raises gap of income inequality and raise the poverty rate. In India, the slow economic growth has been steady for a period of time until 1991 when the trade and investment liberalization and economic reforms signed. It was a major breakthrough that resulted in rapid economic growth in India. The liberalization in India is far different than the standard process of liberalization. India was mainly focusing on the slow and controlled process of liberalization. Aside from the loan received from IMF in 1991, foreign bilateral and multilateral public capital inflows have been restricted. Since India used the slow process of liberalization of trade, then the inequality also has risen at slower pace especially in rural India unlike urban areas that have seen much faster pace. Different factors have been blamed for rising income inequality. First, the process of shifting earnings from labors to capital income. Second, the fast pace growth in the services sector. Third, the rate of the labor absorption has seen a significant drop during the reform period of 1991 (Jha, 2002). After 1991,
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