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Free Exchange reported on a paper written by the McKinsey Global Institution blasting away some of the commonly held myths about trade. They include:

• Myth: Developed economies have seen exports decline and imports rise over the past 15-20 years.
  • Fact: Imports and exports as a % of GDP have stayed remarkably stable since 1994.
• Myth: Developed countries have a trade deficit because of the consumer goods they import (those with the ubiquitous “made in China’ stickers on them.)
  • Fact: The trade deficits are primarily driven by the demand for oil and other forms of energy. Moreover the majority of advanced economies run a surplus in knowledge-intensive manufactured goods such as airplane engines.
• Myth: Trade has led to the decline in manufacturing jobs.
  • Fact: Manufacturing jobs have declined due to increases in productivity.
• Myth: Trade creates low paying jobs.
  • Fact: Trade creates jobs in idea-intensive sectors that pay well.

To read more about the tricky question of income inequality that the report can’t answer, what the empirical research says, why less trade would not be the solution to income inequality, what rich countries need to do, and why it might be a problem that financial innovations can’t be patented, click here.

Source: Free Exchange