Globalisation and poverty

March 29, 2007

Free Market Foundation

Does globalisation, as its advocates maintain, help spread the wealth? Or, as its critics charge, does globalisation hurt the poor? In a new book titled, “Globalization and Poverty,” edited by Ann Harrison, a researcher with the National Bureau of Economic Research, 15 economists consider these and other questions. She concludes that the poor will indeed benefit from globalisation if the appropriate complementary policies and institutions are in place.

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 per cent after the 1997 currency crisis in that country and the poor in Mexico have yet to recover from the pummelling of the peso in 1995.

Without doubt, Harrison asserts, globalisation 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.

Globalisation and Poverty yields several implications, says Harrison:

Impediments to exports from developing countries worsen poverty in those countries.

Careful targeting is necessary to address the poor in different countries who are likely to be hurt by globalisation.

Finally, the evidence suggests that relying on trade or foreign investment alone is not enough to alleviate poverty.

Source: Matt Nesvisky, Globalization and Poverty, NBER Digest, March 2006; based upon: Ann Harrison, Globalization and Poverty, National Bureau of Economic Research, Working Paper No. 12347, July 2006.

For text: http://nber.org/digest/mar07/w12347.html

For more on Trade Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=42

FMF Policy Bulletin/ 20 March 2007