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Linking globalization to poverty

Policy Brief Number 2

Machiko Nissanke and Erik Thorbecke

United Nations University (UNU) - World Institute for Development Economics Research (WIDER)

2007

SARPN acknowledges the UN University as the source of this document: www.unu.edu
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Overview

While the economic opportunities offered by globalization can be large, a question is often raised as to whether the actual distribution of gains is fair, in particular, whether the poor benefit less than proportionately from globalization and could under some circumstances be hurt by it. This Policy Brief summarizes and examines the various channels and transmission mechanisms, such as greater openness to trade and foreign investment, economic growth, effects on income distribution, technology transfer and labour migration, through which the process of globalization affects different dimensions of poverty in the developing world.

Globalization provides a strong potential for a major reduction in poverty in the developing world because it creates an environment conducive to faster economic growth and transmission of knowledge. However, structural factors and policies within the world economy and national economies have impeded the full transmission of the benefits of the various channels of globalization for poverty reduction.

World income distribution continues to be very unequal and many poor countries particularly in Africa are stagnating. Moreover, there is much empirical evidence that openness contributes to more within-country inequality. China is a good example with coastal provinces as opposed to inland provinces reaping the major benefits of globalization.

Progress on poverty reduction has also been uneven. Although the share of the population of developing countries living below US$1 per day declined from 40 per cent to 21 per cent between 1981 and 2001, this was mainly achieved by the substantial reduction of the poor in Asia, in particular in China. Notwithstanding the drop in relative poverty, the total number of people living under US$2 per day actually increased worldwide. In particular, poverty has increased significantly in Africa in both absolute and relative terms.

The risks and costs brought about by globalization can be significant for fragile developing economies and the world’s poor. The downside of globalization is most vividly epitomized at times of global financial and economic crises. The costs of the repeated crises associated with economic and financial globalization appear to have been borne overwhelmingly by the developing world, and often disproportionately so by the poor who are the most vulnerable. On the other hand, benefits from globalization in booming times are not necessarily shared widely and equally in the global community.

Though any trend in poverty and income inequality observed so far cannot be exclusively or even mainly attributed to globalization without rigorous analyses, even the most optimistic estimates cannot dismiss concerns that the globalization process, as it has proceeded to date, may have had some adverse effects on poverty and income distribution. These concerns have generated a passionate debate worldwide as well as a powerful anti-globalization movement.


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