Trade Induced Inequality And Deglobalization

Economic theory argues that free trade leads to an increase in the aggregate real income for countries engaging in trade only under ideal conditions. The literature on international trade often refers to a situation wherein the ‘gainers bribe the losers’.

As a result, state needs to design a compensation mechanism which implies that the state will tax the gainers and transfer enough to compensate the losers. Even if trade benefits a nation in aggregate measures and promises long-run benefits, affected groups would continue to suffer if enough compensation is not made available to them to cope with short-run adjustments. For instance, ....