ECON
The-Incredibles-2nd-Assignment.docx

The implications for the income distribution of this

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The implications for the income distribution of this model As mentioned above, France, with the high intensity of skilled labors, will be better off. As skilled workers contribute in higher value of the perfume exports, hence their real wages are therefore decreasing. Consequently, skilled labors tend to increase. Scare factor, on the contrary, is worse off as unskilled labor is intensively used in production of leather, along with a decrease in the price of leather (H-O-S theorem). Thus, the real wages of unskilled workers are decreasing as they are contributing less value of leathers. After trades, income is redistributed in different amount to both skilled and unskilled workers. Therefore, the gap between the two factors is narrowed down, in term of income. Part b. According to Heckscher-Ohlin model, it is said that countries export products that use their abundant and cheap factors of production, and import products that use the countries’ scarce factors (Blaug 1992). As a result, the increase in the relative price of a product would lead to an increase in the real wages of the abundant labors (skilled or unskilled) used to produce, meanwhile reduce the real wages of the scarce labors. When applying Heckscher-Ohlin theorem into the case of France and India, it can be predicted that the income distribution in France would increase, whereas that discrimination in India would decrease. To be more specific, in Heckscher-Ohlin model, when countries are not in autarky zone to trade with each other, exporting products based on comparative advantages such as their own abundant factors and the price of exported goods is higher than that of imported goods. Consequently, in France, capital owners’ income would go faster than workers’ one. In the long run, this phenomenon caused the income inequality in
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THE INCREDIBLES 11 France to be more serious. By comparison, India definitely will export labor-intensive goods, leading to an increasing in the labor-intensive goods compared to the capital-intensive goods. As a result, Indian workers received more income than capital owners in India did, which improves the income distribution in India. However, the results from data in question 2 (Figure 3, 4, 5, 6) are totally contradict to the above theoretical prediction. According to OECD (n.d), France is one of the only 5 OECD countries which experienced a declining in inequality income. Moreover, in Messerlin’s conclusion, French exports are not particularly skill-labor intensive compared with the rest of the world. Indeed, liberal trade is associated with better jobs rather than more jobs. As to India, the trade openness seems to increase together with the increasing in regional inequalities. According to Daumal (2008), there was a significant increase in inequality income in 1992 post liberalization when India government brought in positively policies for foreign trade after a nearly constant in income distribution in 1980s. However, those policies strongly stimulated the states located in the southern and coastal parts in Indian, not for the middle area of the nation. Hence, due to the advantages in geography, southern and coastal states’ income grew faster than those which located in the middle of the country, making the income gap become bigger.
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