The Ricardian theory of comparative advantages has been frequently put forward in order to legitimate the benefits of international trade. Here goes the story: A country has a comparative advantage in producing a particular good when it can produce it at a lower opportunity cost than another country. Therefore, each country should end up specializing in the production of the good for which it has a comparative advantage, resulting in an increase in world output, efficiency gains and potential welfare gains. The expansion of the textile industry in Bangladesh is a striking example of this theory. Since the introduction of free trade policies in the years 2000s, the textile sector has grown at a tremendous pace, accounting nowadays for around 80% of the country’s exports and most part of Bangladesh’s growth. Following Ricardo, this specialization is due to the fact that the country has a comparative advantage in textile production (i.e. a large pool of low-skilled, cheap and docile labour force), this specialization in turn would have led to an increase in demand for these low-skilled workers and to a reduction in inequality due to increasing wages. Actually, this is the moment when everyone laughs. The collapse of the Rana Plaza garment factory in April 2013 has shown to the world how desperate local working conditions can be for workers in garment factories and that the benefits of international trade are nothing but equitable. But is it really the truth?
According to the World Bank, GDP per capita in Bangladesh has been on a significant upward trend from the end of the 1990s, accelerating in the 2000s with the liberalization of the country. In the meantime, the Gini coefficient, which is a measure of the level of inequality (100 referring to a situation where all income goes to one single person), has increased as well, casting some doubt on the theory of comparative advantages in order to explain the development of Bangladesh (see illustrations). Nonetheless, what this trend does not tell us is that Bangladesh is currently also one of the least unequal country in the world with a Gini coefficient of 32.12 according to the latest data, two points above… Belgium (with has a Gini coefficient of 33.14 according to the latest data) and far below most South American and African countries. It appears thus that the opening to free trade is correlated with an increase in the country’s wealth measured through GDP and to an increase in inequality that seems to be however under control. In other words, free trade has made the country a lot wealthier without making the country a lot more unequal…
The cynical question is therefore whether Bangladeshi workers in garment factories are really worse off due to free trade? First of all, it should not be forgotten that most workers in textile factories are women coming from rural regions and that they consider this job as a real opportunity to become financially independent. Secondly, the boom of the textile sector in the country has brought a job to many people who otherwise would be workless. To a certain extent, the theory of comparative advantages seems thus to hold true and the welfare effect for Bangladeshi workers in the textile sector tangible. However, as there are comparative advantages, there are also obviously comparative welfare gains.
Picture author: https://www.flickr.com/photos/43588942@N06/