Economic History in Economic Terms, Research Proposal

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Further, while inequality may have increased, on average, within countries, inequality measured across all the people of the world, may actually be falling. Pritchett does not address this issue. In addition, Pritchett provides no explanation of why globalization is not rendering conditional occurrence a reality. This would have been useful for supporting the author's conclusion that divergent polices are needed to address the unique needs of specific countries.

The most noted international trade theories that support the concept of globalization and conditional convergence are the laws of comparative advantage and absolute advantage. Comparative advantage states that mutually beneficial exchange is possible whenever relative production costs differ prior to trade (Comparative advantage and absolute advantage). According to this source, nations gain by producing goods at relatively low costs and exchanging their outputs for different goods produced by others at relatively low cost. Thus, all potential trading partners can gain enormously through appropriate specialization and exchange. A country has an absolute advantage in producing a good if production of the good absorbs fewer resources than are required in other countries or by other individuals or firms (Comparative advantage and absolute advantage).

So, why would divergence as opposed to convergence, occur under globalization? Galor and Mountford (2008) appear to provide meaningful insight for answering this question.

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They explain that the expansion of international trade has enhanced the specialization of industrial economies in the production of industrial, skilled intensive, goods. In comparison, in developing countries, international trade has provided an incentive to specialize in the production of unskilled intensive, non-industrial goods. Thus, increase in the demand for skilled labor in developed countries has further enhanced their comparative advantage in the production of skilled intensive goods while limited demand for human capital in developing countries has not increased income. Galor and Mountford (2008) imply that international trade has persistently affected the distribution of population, skills, and technologies in a globalized economy, and has been a significant force behind the divergence in income per capita across countries reported by Pritchett.

Pritchett concludes the article by theorizing that appropriate growth policies will most likely differ according to the situation of a country rather than adhering to a universal theory and set of policies. Certainly, trade based on the notion of comparative advantage does not seem to be equally beneficial for all countries. As such, Pritchett's analysis is helpful for understanding this situation so that policies can be revisited with the hopes of a more egalitarian world market......

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