Impact of Globalization on the Poor in Africa, Asia and Latin America

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Impact of Globalization on the Poor in Africa,
Asia and Latin America
Machiko Nissanke and Erik Thorbecke

• Paper Presented at the 2008 World Congress on
  National Accounts and Economic Performance
  Measures for Nations, May 12-17, 2008, Washington
  D.C.

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Content of Presentation

• ? 1. Introduction
• ? 2. Channels Linking Globalization to Poverty
• ? 3. Regional Characteristics in Globalization-
• Poverty Nexus
• ? Comparative Globalization Experiences
• Sub-Saharan Africa
• Asia
• Latin America
• ? 4. Strategic Policies for More Pro-Poor
  Process
• ? 5. Measurement Issues

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1. Introduction

• ? Machiko Nissanke and Erik Thorbecke
  Co-directed a Large Scale Research Project on
  The Impact of Globalization on the Worlds Poor
  under the Auspices of UNU / WIDER, 2003-2007.
• ? Four Major Conferences Helsinki, Tokyo,
  Johannesburg, Rio de Janeiro Generating about 60
  Studies that Have Been or Will Be Published in 3
  Books and 3 Special Issues of Journals.
• ? The Present Paper is Based on the
  Introduction to a Forthcoming Comparative Volume.

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1.What Is Globalization?What Are its
Manifestations?

• Greater integration within the world economy via
  increased openness to
• International trade
• International capital and labor movements
• International flow of technology
• International flow of information, knowledge, and
  ideas (Internet super-highway)

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1.Questions Often Asked

• Whether the actual distribution of gains is fair?
  Whether the poor benefit less than
  proportionately from globalization and under
  some circumstances might actually be hurt by it ?
• The downside of globalization Who bears most of
  the costs? Are they borne disproportionately by
  the developing world and the poor (often
  unskilled workers) who are more vulnerable ?
• Whether changes in inequality (both between-
  countries and within-countries) and the
  observed poverty dynamics are related to
  globalization?

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2.Transmission Channels through which
Globalization Affects Poverty

• Globalization affects poverty through many
  different channels growth, inequality,
  international capital movements and labor
  migration, technology, information, vulnerability
  and institutions
• The first and most important of the mechanisms
  through which the process of globalization
  affects poverty directly and indirectly is the
  growth-inequality-poverty channel.

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2.The Globalization-Openness-Growth-Distribution
(Inequality)-Poverty Nexus
Growth
-

Classical
Poverty
Globalization Openness
Kuznets
Modern -


Trade Capital Labor Technology Knowledge
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2. Additional Channels through which
Globalization Impacts the Poor

• Growth is the Main Channel (filter) through which
  Globalization Affects Income Inequality and
  Poverty
• Other Channels through which Globalization can
  Produce Winners and Losers
• Changes in Relative Factor and Good Prices
• Differential Cross-border Factor (Capital and
  Labor) Mobility
• The Nature of Technical Progress and
  Technological Diffusion Process
• Institutions

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3. Comparative Globalization Experiences

• ?Lack of an Appropriate Counterfactual Scenario
  of No or Less Globalization
• ?Attempt to Describe Trends in LA Socio-economic
  Performance that One Can Legitimately Claim Were
  Influenced by the Globalization Process
• ?General Picture is Painted with a Broad Brush to
  Serve as a Backdrop to Case Studies that Explore
  Specific Manifestations of Globalization

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Global Comparisons of Trade Openness and p.c. GDP
( .. not available) Sources 1. World Bank
World Development Indicators, 2005 (calculated
from current US estimates) 2. World Bank
World Development Indicators, 2005 (own
calculations) 3. World Bank World Development
Indicators, 2005 (average annual )
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Poverty Trends

Sources 1. Chen Ravallion (2004) Table 2
based on international poverty line (1.08 1993
PPP)
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3.1 Globalization?Poverty in SSA

• ? Africa is Ahead of LA and South Asia in Terms
  of Trade Intensity and Represents a Clear Example
  that Openness is not Sufficient to Generate
  Economic Growth.
• ? Negative p.c. GDP Growth Rates in 80s and
  90s Influenced by e. g. Poor Governance and
  Institutions, Geography, Fragmentation.
• ? Also Natural Resource Curse and Massive
  Exploitation of Agriculture and Dutch Disease.

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3.1. Globalization?Poverty in SSA

• ? Essentially no Structural Transformation and
• Diversification
• ? Increase in Relative and Absolute Poverty and
• Income Inequality
• ? Growth Engine Failed and Greater Inequality
• Further Worsened Poverty Incidence

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3.2. Globalization? Poverty in Latin America

• ?Decade of the 1980s Lost Decade, Debt
  Restructuring, Liberalization, Deregulation,
  Privatization ? Ave. Annual GDP Growth Rate 2
  Stagnation
• ?Decade of the 1990s (Re)-integration in World
  Economy TNCs adopt new capital-intensive
  technologies complementary to skilled labor and
  substitute for unskilled labor? Skilled/Unskilled
  wage gap rises (except in Brazil).
• ?Increasing Income Inequality and Income
  Polarity

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3.2. Globalization? Poverty in Latin America

• ?Fall in Health and Education Indicators
  Inequality Reflecting Presumably the Impact of
  Social Protection Schemes ( e.g. Oportunidades in
  Mexico and Bolsa Familia in Brazil)
• ?Poverty (2 a day) Rose from 29.6 in 1993 to
  31.7 in 2002
• ? Informalization of Labor Force

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3.2. Globalization? Poverty in Latin America

• ? The Combination of a Low Growth Transmission
  Channel further Filtered down by Greater Income
  Inequality and Polarization and a Technology
  Transfer Channel not Conducive to Unskilled Labor
  Employment Could not Play a Role in Reducing
  Poverty
• ? Inconsistent (Stop and Go) and Populist
  Economic and Monetary Policies Followed by Many
  LA Regime Contributed to Mixed Socio-economic
  Performance
• ? Recent Growth Spurt ( 2004-2007) 5 Growth of
  LA GDP. Is it Sustainable??

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3.3. Globalization? Poverty in Asia

• ? Asia Benefited most from Dynamic Growth
  Effects of Globalization.
• ? Dramatic Fall in Poverty throughout Asia
• ? Successful Structural Transformation
• ? Exploited Dynamic Comparative
• Advantage. Labor-Intensive Exports and
• Shared Growth. Flying Geese Paradigm

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3.3. Globalization? Poverty in Asia

• ? Pro-Poor Public Expenditures Pattern
• ? Large Rise in Within-Country Income
• Inequality
• ? Growth Engine so Strong that it More
• than Compensated Negative Effect of
• Inequality on Poverty

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3.4 Some Conclusions

• ? Impact of Globalization is Highly
  Context-Specific.
• ? Most Potentially Important Channel is Growth.
  Until very
• recently Growth Engine Succeeded in Asia,
  Sputtered in LA and Failed in SSA and was further
  Weakened in its Impact on Poverty by Increased
  Inequality.
• ? Technology Transfer Channel Tended to Polarize
  
• Further Income Gap between Skilled and
  Unskilled.
• ? Nonetheless Trade Liberalization Can be Potent
  
• Instrument to Raise Growth (Efficiency) and
  Reduce
• Inequality when Complemented by Safety Nets
  and
• Social Protection Schemes.

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4. Measurement Issues

• ?Poverty is a Multidimensional Concept
  (Following Sens Capability and Functioning
  Approach) Consisting of Income (Money-metric) and
  non-Income Variables. Extremely Difficult to
  Define Scalar Concept Capturing all Dimensions
• ? Imperfect but Best Proxy for now is Income
• ? A major Problem is that the Imputed Value of
• Benefits Received by Households from Public
• Goods and Services is Excluded from
  National
• Accounts and Survey Data. Public
  Expenditure
• Pattern can be Progressive or Regressive.

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4. Measurement Issues

• ?Of the Large Number Inequality Measures
• (Gini, Atkinson, Deciles, Polarization,..)
• which are the most Representative?
• ?Need for Standardization and Fruitful
• Dialogue between Statisticians and
• Economists.

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