Thus in this situation trade liberalization or openness in the economy is going to worsen the inequality. However, after reaching certain level of openness the economy, will benefit low income people with multiplier effect, hence fall in inequality will happen post that. Keeping in mind that trade liberalization is accompanied with fiscal reforms and tax revenues from firms who are at advantage due to liberalization can be directly invested in social programs, health care and employment promoting activities can further reduce the inequality. With trade liberalization country will be able to see a rise in the import of goods as well. Countries having comparative advantage in unskilled labor will see that the goods imported are lower in price and can be produced domestically. Since, such goods are primarily consumed by lower income groups and can be produced domestically now, rise in real income of lower income group is bound to happen.
Assumptions made by Kuznet before for studying this region are as follows:
1)Inequality had declined in several nations across mid-20th century and it was supposed that it probably had risen earlier.
2)It was assumed that demand side forces only control the curve i.e. structural changes and technological changes were favored for demand and skills.
3)Labor saving conditions were created which eventually moderated as the rate of structural development and technological development slowed down.
4)Eventually the labor saving will be stopped and impact of egalitarian forces will be much more.
5)Hypothesis in unconditioned by any other effects on the economy and is majorly demand driven.
6)It was assumed that the per capita income in the agricultural sector is way lower than the average income in the industrial sector.