Say for instance that the central region of a large city is subjected to increased industrialization and major investments from foreign partners. This will increase the value of that particular region, will capture the interest of other investors and will increase the living standards of the workers and the population located in the vicinity of the new business venture. However, the marginal regions of the city, where the poorer population lives and works will remain unaffected by the central developments. The situation will as such generate relative poverty and will even further increase the income inequality.
Empirical Evidence
The empirical evidence is based on numerous features and state that no general rule can be established, but that the results depend upon numerous features such as "the choice of period, of the sample, and of proxies" (Bhagwati and Srinivasan). As such, the results are once again contradictory, with findings to support both theories. They can be summarized as follows:
The link between trade and growth is given by the evidence that no self sufficient economy has managed to register growth - This observed fact can also be explained with the aid of basic economics concepts. Starting with Adam Smith and later on David Ricardo, it has been suggested that countries could register growth through the manufacturing and exporting of those items for which they possess a comparative advantage. And since autarkic countries fail to engage in such operations, it is only natural for their economies to stagnate.
Measured in the GDP of the globalizing and non-globalizing countries, studies between 1977-1997 reveal superior growth of the non-globalizing countries, implying as such that an economy can grow and expand without basis of international trade - to better explain this statement: countries not engaged in globalizing activities have managed to register superior levels of growth than the countries engaged...
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