What is the link between Globalization and Poverty?

In my previous post, I noted that the narrator of the Globalization is Good documentary claimed that there was a strong correlation between how globalized a country is and poverty. Specifically, those countries that are globalized are likely to have less poverty. How does this claim stand up to empirical scrutiny? Well, one answer comes from the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.

“The evidence strongly suggests that export growth and incoming foreign investment have reduced poverty everywhere from Mexico to India to Poland. Yet at the same time currency crises can cripple the poor.”

Does globalization, as its advocates maintain, help spread the wealth? Or, as its critics charge, does globalization hurt the poor? In a new book titled Globalization and Poverty, edited by NBER Research Associate Ann Harrison, 15 economists consider these and other questions. In Globalization and Poverty (NBER Working Paper No. 12347), Harrison summarizes many of the findings in the book. Her central conclusion is that the poor will indeed benefit from globalization if the appropriate complementary policies and institutions are in place.

Harrison first notes that most of the evidence on the links between globalization and poverty is indirect. To be sure, as developing countries have become increasingly integrated into the world trading system over the past 20 years, world poverty rates have steadily fallen. Yet little evidence exists to show a clear-cut cause-and-effect relationship between these two phenomena.

Many of the studies in Globalization and Poverty in fact suggest that globalization has been associated with rising inequality, and that the poor do not always share in the gains from trade. Other themes emerge from the book. One is that the poor in countries with an abundance of unskilled labor do not always gain from trade reform. Another is that the poor are more likely to share in the gains from globalization when workers enjoy maximum mobility, especially from contracting economic sectors into expanding sectors (India and Colombia). Gains likewise arise when poor farmers have access to credit and technical know-how (Zambia), when poor farmers have such social safety nets as income support (Mexico) and when food aid is well targeted (Ethiopia).

The evidence strongly suggests that export growth and incoming foreign investment have reduced poverty everywhere from Mexico to India to Poland. Yet at the same time currency crises can cripple the poor. In Indonesia, poverty rates increased by at least 50 percent after the 1997 currency crisis in that country, and the poor in Mexico have yet to recover from the pummeling of the peso in 1995.

Without doubt, Harrison asserts, globalization produces both winners and losers among the poor. In Mexico, for example, small and medium corn growers saw their incomes halved in the 1990s, while larger corn growers prospered. In other countries, poor workers in exporting sectors or in sectors with foreign investment gained from trade and investment reforms, while poverty rates increased in previously protected areas that were exposed to import competition. Even within a country, a trade reform may hurt rural agricultural producers and benefit rural or urban consumers of those farmers’ products.

The relationship between globalization and poverty is complex, Harrison acknowledges, yet she says that a number of persuasive conclusions may be drawn from the studies in Globalization and Poverty. One conclusion is that the relationship depends not just on trade or financial globalization but on the interaction of globalization with the rest of the economic environment: investments in human capital and infrastructure, promotion of credit and technical assistance to farmers, worthy institutions and governance, and macroeconomic stability, including flexible exchange rates. The existence of such conditions, Harrison writes, is emerging as a critical theme for multilateral institutions like the World Bank.

Globalization is good…or is it?

Is globalization good for those in developing countries? What is the link between globalization and poverty? What about globalization and democracy? Today in IS210 we watched a documentary in which the narrator argued that more globalization is good for the poor in developing countries. He argued that countries that have (and are) globalizing, such as Taiwan and Vietnam,  have become richer, more democratic, and poverty levels have plummeted. On the other hand, countries that haven’t democratized, regardless of whether this is the result of domestic or external policy, have done poorly. They’re less democratic and poorer than they otherwise could be.

Here’s a link to the documentary, and some questions that you may want to think about:

  1. Has globalization been beneficial or detrimental to Taiwan’s economic development? Explain.
  2. What role, according to the narrator, do multi-national corporations (MNCs) play in globalization? Should LDCs embrace the arrival of MNCs into their economies? How can the example of Vietnam inform our answers to these questions? Is there a link between MNCs and worker productivity?
  3. According to the narrator, what was the role of sweatshops in the development of Taiwan’s economy? Were they necessary?
  4. What is the link between globalization and democracy? What is the process that causes this empirical link?
  5. What is the reason for Africa’s slow growth, according to the narrator? Which of Collier and Gunning’s [from Chapter 9 of Essential Readings) four categories would apply? How does the situation of Kenya inform our answers to this question?
  6. What is the e ect of developing countries trade policies on economic outcomes in Kenya and in other parts of the developing world?

Does Globalization Cause Ethnic Conflict?

Today’s session in IS 309 addressed the link between globalization and ethnic conflict. Our main reading material came from Amy Chu’s book, World On Fire, the thesis of which is that the twin phenomena of economic globalization and the spread of liberal democracy cause ethnic conflict in countries that have “market-dominant minorities.” Cynthia Olzak’s recently published article in the Journal of Conflict Resolution answers the same question in this way:

This article examines how different components of globalization affect the death toll from internal armed conflict. Conventional wisdom once held that the severity of internal conflict would gradually decline with the spread of globalization, but fatalities still remain high. Moreover, leading theories of civil war sharply disagree about how different aspects of globalization might affect the severity of ethnic and nonethnic armed conflicts. Using arguments from a variety of social science perspectives on globalization, civil war, and ethnic conflict to guide the analysis, this article finds that (1) economic globalization and cultural globalization significantly increase fatalities from ethnic conflicts, supporting arguments from ethnic competition and world polity perspectives, (2) sociotechnical aspects of globalization increase deaths from
ethnic conflict but decrease deaths from nonethnic conflict, and (3) regime corruption increases fatalities from nonethnic conflict, which supports explanations suggesting that the severity of civil war is greater in weak and corrupt states.

Chua’s book was received with some praise but also with a fair amount of criticism. Here are some links to videos that may be of interest to you: