If India has a comparative advantage in producing low-skilled, labor-intensive g

Question

If India has a comparative advantage in producing low-skilled, labor-intensive goods, what should happen to Indian low-skilled workers' wages as trade barriers against Indian imports fall across the world? What should happen to returns to capital in India? If India has a comparative advantage in producing low-skilled, labor-intensive goods, what should happen to Indian low-skilled workers' wages as trade barriers against Indian imports fall across the world? What should happen to returns to capital in India?

Explanation / Answer

Trade will increase the demand for the labor-intensive product and to produce more firms will have to hire more labors. this will increase the demand for labor and their wages. On the other hand, as the capital-intensive goods will be imported the demand for the capital in India will fall and its return will decrease.

Trade tends to increase the return on the abundant product and decrease the return on the rare product.  

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