How has international trade affected income differences between countries? | Read More

International trade has been the subject of many theories that have attempted to explain its benefits for the different countries involved. One of the most famous is David Ricardo's comparative advantages. This theory states that each country has an interest in specializing in the sectors of activity where its relative power in terms of productivity is the highest, or where its disadvantage is the lowest. Even if it is less productive than its partners on all of its products, it must specialize in those where the productivity gap against it is the smallest. 

Today, this 200-year-old theory still holds in the structure of international trade. Developed countries are investing their resources in expanding their production facilities and importing raw materials to supply their industries. For example, countries like France, the United States, or Russia will import Uranium, lithium, or cocoa from developing countries. These developing countries, which have an abundant workforce, will, in turn, specialize in activities that require a lot of human capital, such as agriculture or mining. 

Developing countries that have less capital and therefore, cannot invest in significant processing industries will have as their source of income the export earnings from the raw materials produced by the country. The industrialized nations will then transform these raw materials into finished products, which will subsequently be sold worldwide, including in these developing countries. We arrive at a situation where countries make available raw materials and skills at a lower cost to manufacture more refined products, which they will buy at a higher price. 

This situation, which has lasted for centuries, has led to a widening gap between industrialized and developing countries. A gap that some countries have tried to bridge by acquiring suitable processing tools, but this competition has not necessarily been to the taste of developed countries.

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