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...will result from this conference provide an economic perspective on how globalization affects poverty in developing countries. Although there have been many studies devoted to assessing the relationship between trade and inequality, this is the first comprehensive examination of the direct linkages between globalization and poverty.
The volume begins by considering the possible theoretical links between poverty reduction and globalization. This is followed by several cross-country studies that test for macroeconomic linkages using aggregate data. Many of the papers, as well as the discussions by Art Kraay and Xavier Sala-I-Martin, point out that greater global trade could reduce poverty by raising overall growth. The cross-country studies, while consistent with these claims, emphasize the necessity to use disaggregated data.
Each of the remaining papers uses microdata to estimate the impact of globalization on poverty within a particular country. Globalization matters to the poor because it affects the prices of goods that they consume and produce, as well as their wages and employment opportunities. This volume also investigates the indirect impact of globalization on the poor through its effect on risk, inequality, financial market deregulation, and aid flows to the poor. Several themes emerge across the different country studies.
First, the poor are more likely to share in the gains from globalization when there are complementary policies in place. The study on India suggests that globalization is more likely to benefit the poor if trade reforms are implemented in conjunction with labor market deregulation. In Zambia, poor farmers could only benefit from greater access to export markets if they also have access to credit, technical know-how, and other complementary inputs. The studies also point to the importance of social safety nets. In Mexico, if poor corn farmers did not receive income support from the government, their real incomes would have been
halved during the 1990s. In Ethiopia, if food aid is not well targeted, globalization has little impact on the poor.
Second, the evidence suggests that trade reforms in a number of countries have contributed to reducing poverty. In Mexico, the poor in the most globalized regions have weathered the macroeconomic crises best. The study on Zambia suggests that poor consumers gain from falling prices for the goods they buy, while poor producers in exporting sectors benefit from trade reform through higher prices for their goods. In Colombia, the poor located in exporting sectors gained from trade reform. Unskilled workers in Poland have gained from its accession to the European Union, leading to broad income gains.
Third, both the cross-country and individual case studies suggest that financial crises are very costly to the poor. However, the evidence on Indonesia suggests that the poor recover surprisingly quickly. A study of financial deregulation across countries reinforces the need for complementary policies, such as the creation of reliable institutions and macroeconomic stabilization policies (including the use of flexible exchange rate regimes).
Since the evidence suggests that globalization creates winners as well as losers among the poor, the final study by Aisbett seeks to understand globalization's critics. Aisbett concludes that critiques of globalization arise because of concerns about short-term costs versus the longer-term gains from trade reform, as well as different interpretations regarding the evidence. This final chapter also points to the paucity of knowledge on the possible linkages between globalization and poverty reduction, which this volume seeks to address.
These papers and discussions will be published as Globalizalion and Poverty:
Donald Davis, NBER and Columbia University, "Trade and Poverty: Insights from Theory" Discussant: Marc Melitz, NBER and Harvard University
Nava Ashraf, Harvard University; Margaret McMillan, Tufts University; and Alix Peterson-Zwane, University of California, Berkeley, "My Policies or Yours: Do OECD Agricultural Policies Affect Poverty in Developing Countries?" Discussant: Mitali Das, Columbia University
William Easterly, New York University, "Globalization, Poverty, and All That: Factor Endowment versus Productivity Views" Discussant: Aart Kraay, World Bank
Pinelopi K. Goldberg, NBER and Yale University, and Nina Pavcnik, NBER and Dartmouth College, "The Effects of the Colombian Trade Liberalization on Urban Poverty" Discussant: Chang-Tai Hsieh, NBER and University of California, Berkeley
Gordon H. Hanson, NBER and University of California, San Diego, "Globalization and Labor Income in Mexico" Discussant: Esther Duflo, NBER and MIT
Ethan Ligon, University of California, Berkeley, "Risk and the Evolution of Inequality in China in an Era of Globalization" Discussant: Shang-Jin Wei, NBER and IMF
Petia Topalova, MIT, "Trade Liberalization, Poverty, and Inequality: Evidence from Indian Districts" Discussant: Robin Burgess, NBER and London School of Economics
Jorge F. Balat and Guido G. Porto, World Bank, "Globalization and Complementary Policies: Poverty Impacts on Rural Zambia" Discussant: Matthew Slaughter, NBER and Dartmouth College
James Levinsohn, NBER and University of Michigan, and Margaret McMillan, "Does Food Aid Harm the Poor? Household Evidence from Ethiopia" Discussant: Rohini Pande, Yale University
James Levinsohn, "Globalization and the Returns to Speaking English in South Africa" Discussant: Raquel Fernandez, NBER and New York University
Duncan Thomas, University of California, Los Angeles, "Globalization, Crises, and Households: Evidence from Indonesia" Discussant: Donald Cox, Boston College
Chor-Ching Goh and Beata S. Javorcik, World Bank, "Trade Protection and Industry Wage Structure in Poland" Discussant: Irene Brambilla, Yale University
Branko Milanovic and Lyn Squire, World Bank, "Do Pro-Openness Policy Reforms Increase Wage Inequality? Some Empirical Evidence" Discussant: Douglas Irwin, NBER and Dartmouth College
M. Ayhan Kose and Eswar Prasad, IMF; Kenneth Rogoff, NBER and Harvard University; and Shang-Jin Wei, "Financial Globalization, Growth, and Volatility in Developing Countries" Discussant: Susan Collins, NBER and Georgetown University
Emma Aisbett, University of California, Berkeley, "Why are the Critics so Convinced that Globalization is Bad for the Poor?" Discussant: Xavier Sala-I-Martin, NBER and Columbia University
Davis provides the framework for the volume by identifying the theoretical channels through which changes in globalization could affect poverty and inequality. Focusing in particular on the impact of international trade, he reviews the standard implications of the popular factor models and sector specific models and shows that the effect of a trade reform on poverty and inequality is not clear. In particular, he shows that small changes in the assumptions used in these models reverse the standard prediction that labor intensive sectors of poor countries are the most likely to gain from trade reforms. He also explores the implications of economic geography models and models with heterogeneous agents for the relationship between trade, inequality, and poverty.
Developed countries heavily subsidize their agricultural sectors. The magnitude of these subsidies is striking, compared to both the size of the agricultural sector in these countries, and incomes in poor countries. Using a variety of empirical strategies, Ashraf, McMillan, and Peterson-Zwane seek to understand the impact of these subsidies on the poor in developing countries. They begin by using a cross-country regression framework, analyzing the relationship between per capita income and measures of rich-country subsidies to agriculture. The preliminary evidence suggests that OECD subsidies do affect incomes of the poor and that the sign of this effect depends on whether the country is a net importer or exporter of the agricultural product in question. The authors complement their cross-country analysis with a case study of Mexican corn farmers using data at the micro, individual farmer, and household level. The evidence from Mexico suggests that the income of the poorest corn farmers in Mexico from corn farming dropped substantially between 1991 and 2000. However, the total income of these corn farmers remained relatively stable. This is because the poorest corn farmers received substantial transfers. While some of these transfers were in the form of remittances, the majority of them came from the Mexican government through programs like PROGRESA and PROCAMPO.
Easterly notes that the textbook models of trade and factor flows say that globalization has three beneficial channels for unskilled workers in poor countries: 1) it gives them access to inflows of capital, which will raise the marginal product of labor and thus wages; 2) it gives them the opportunity to migrate to rich countries, where their wages will be higher; and 3) it gives them world market access for their goods,...
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Innovation Policy and the Economy, Volume 5.(Bureau Books), December 22, 2004
NBER working papers on-line.(Current Working Papers), December 22, 2004
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