Economic Exchange and Economic Growth

Economic exchange is an important tool to enhance economic growth. However, contrary to the expectation, intensified economic exchange in America, as a result of free trade has negatively impacted on wage rates. Consequently, as free trade extends to non- American economies, converting the whole world to a global village, the impact on wages spreads out to other nation and with the current trend it will soon flatten wages across the globe at a low level. The deregulation in trade has resulted to relocation of production towards the cheap labor zones hence gaining a completive advantage. In an effort to compete fairly, production firms left in the developed countries try to reduce their production costs by reducing labor costs and deteriorating work environment conditions, hence resulting to a race to the bottom. Economics have tried to explain this phenomenon, proposing solutions to the controversy.
To start with, economic growth differs from nation to nation and thus causing differences in development status. Accordingly, prices differ mostly due to production costs. United States as a nation portrays a clear image of this phenomenon, with the south being less developed as compared to the north. While cheap labor dominates the undeveloped regions, capital accumulation is higher in developed regions. With the aim of maximizing profits, capitalists from the north have shifted their investment to the south to capture the available cheap and trainable labor (Rosnick, 2013). This reduces the demand for northern labor, causing their wages to fall. Mainstream economists; consider investors as rational and thus the shift of investment nets ought to continue until wages in the northern region equal those of the southern region. It’s ...

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...duction, natives spend a proportion of their income. Thus, their real income is reduced. Therefore, any increase in domestic price for production in developing countries only affect the nominal wage but not real wage and thus reducing their currency value. Intuitively, exports to US will remain lowly priced hence stiffly competing with US’s locally produced goods.
In a nutshell, despite economic exchange being a necessity, its intensification leads to “a race to the bottom’. The underlying material facts are that different economies at different development states cannot be connected by a set of similar rule and regulation. The repercussions are that investment flows to undeveloped zones characterized by cheap labor. in response the developed economies will lower wages, reduce the effectiveness of labor rights that will result in job condition deterioration.