TRADABLE AND NON TRADABLE SECTOR
Tradable sector have two main parts as exportable and importable goods. Since tradable sector is integrated to the world economy, it is influenced from the changingconditions of the world economy. Accordingly, the price conditions of the tradable sector are determined by the world markets and the government has no power on the price level of this sector. On thecontrary, nontradable sectors are not stick to world economy as they produce goods for domestic markets and therefore government has power on this sector and could be able to implement separate (herown) income policies.
For example, major characteristics of tradable sectors in developing countries are the presence of high productivity of production factors and the requirement of high skilledworkers. Meanwhile, nontradable sectors need relatively low skill requirement and low productivity of production factors. The nontradable sectors have the capability of absorbing more labour than that ofthe tradable sector due to lower skill requirement. Despite of these differences, overall income policies imposed in both sectors show similar features in many countries
Therefore, applyingnon-discriminating income policies may cause problems in the economy. Implementing these policies would not only reward the less productive sector with a wage beyond its productivity; and punish theproductive one with a wage below its productivity but also would lead to a financial burden to the government. Mainly, since a government has much more power on nontradable sector than she has on the tradablesector (due to the locally determination ofdemand and supply condition), policies applied into economy mostly target on increasing the demand conditions of nontradable sector to cover the lowermarginal productiveness of this sector. As changing the demand conditions of that sector is easier than the changing the conditions of total factor productivity, governments chose to apply income policies...
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