Sample Essay

Similarly, factor endowment theory concluded that trade brings gains to countries. It assumed that all countries have similar access to technology. It also predicted that “international real wage rates and capital costs will gradually tend towards equalization”[1].  However, the realities are different, as technology available to the developing and developed nations is different. Therefore, developing nations do not have much to encash on. The prediction of equalization of  real wages and capital costs also never materialized. In effect, the difference between wages of employees of developed countries and developing countries has only increased over the years.

Free trade assumes that all countries possess similar factors of production which are fixed within the nations. They are completely utilized and immobile to move beyond borders. However, the reality is different; human capital and technology are dynamic factors and trade in fact increases inequality of production resources between countries. In context, the developed countries posses an advantage over developing countries because they have superior capital resources and will continue to specialize in research and development to produce more capital goods. Whereas, developing countries are disadvantaged in capital resources and mostly posses labor resources. Therefore, they will continue to specialize in labor intensive goods and the gap of resources will widen.

M.P. Todaro and S.C. Smith, Economic Development, Addison Wesley, 2002 , p.531

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