www.wider.unu.edu NUMBER 3, 2010 Overview Despite the enormous potential of Linking Globalization to Poverty in globalization in accelerating economic growth through greater integration into the world economy the impact of Asia, Latin America and Africa globalization on poverty reduction has been uneven. Asia has been the major benefi ciary of globalization where high growth rates and its labor-intensive pattern contributed to a spectacular reduction in poverty. In contrast, the LOBALIZATION AND POVERTY, ALONGSIDE THE ISSUE OF integration process in Latin America did G change epitomize two of the most pressing contemporary not contribute to accelerating growth international development issues. Despite the enormous potential and employment and even led, in some of globalization in accelerating economic growth and development through instances, to an informalization of the labor force. In spite of opening up, the greater integration into the world economy, the spread and transfer of failure of sub-Saharan Africa to diversify technology, and the transmission of knowledge, the impact of globalization and undergo structural transformation on poverty reduction has been uneven and even marginal in some regions, has led to the persistence of low growth such as in much of sub-Saharan Africa (SSA). Both the prevalence and depth and debilitating poverty. While the of poverty in many parts of the developing world remain unacceptably high. impact of globalization on poverty is context-specifi c, we argue that countries A question often raised is whether the actual distribution of gains intent on benefi tting from globalization from globalization is fair and, in particular, whether the poor benefi t need to adopt a pro-active stand in proportionately less from globalization and could actually be hurt by formulating regional and national it under some circumstances. The risks and costs brought about by strategies to enhance the potentially positive effects of globalization and globalization can be signifi cant for fragile developing economies and the moderate the negative effects. world’s poor. The downside of globalization is most vividly illuminated during times of periodic global fi nancial and economic crises. The costs Written by MACHIKO NISSANKE AND of repeated fi nancial crises fuelled by the globalization process, at least ERIK THORBECKE until the present major recession, have been borne overwhelmingly by the © United Nations University, 2010 developing world and often disproportionately so by the poor who are the ISBN 978-92-808-3080-4 most vulnerable. On the other hand, the benefi ts from globalization during ISSN 1813-5706 boom times are often not equally shared within the global community. Licensed under the Creative Commons The fear that the poor have been bypassed, or actually hurt, by globalization Deed “Attribution-NonCommercial- was highlighted by the fi ndings from a number of recent studies, which NoDerivs 2.5” point towards a continuing prevalence of high inequality in the world income distribution, and limited income convergence among participating national economies and across regions. The progress on poverty reduction has also been uneven. The share of the population of developing countries living below US$1.25 per day declined from 52 per cent to 25 per cent between 1981 and 2005, but this was www.unu.edu mainly achieved by the substantial is not purely driven by new About the Authors reduction of the poor in Asia, in technological innovations and particular in China. Furthermore, progress or by ‘neutral’ market forces over the period 1981–2005, the and other inescapable sociopolitical total number of people living forces, as often depicted in popular under US$2 per day has actually writings. In particular, the current increased worldwide by about 2 phase of globalization is, to a certain million to 2.53 billion in 2005. There extent, an outcome emerging is a clear disparity in regional trends from the global acceptance and in poverty reduction. While East diffusion of the economic policy Asia and the Pacific experienced paradigm, emphasizing benefits and the sharpest reduction in the positive features of the liberalized proportion of poor living below policy regime characterized by the Machiko Nissanke is US$1.25 per day from 78 per cent Washington Consensus. Professor of Economics at to 17 per cent, between 1981 and As the process of economic the School of Oriental and 2005, the poverty headcount ratio integration has intensified since African Studies, University remained very high in sub-Saharan the 1990s, the question of how Africa (around 52 per cent) and the globalization affects the world’s of London. She previously number of poor almost doubled poor has become one of the central worked at Birkbeck from 212 to 388 million. issues in international political College, University Though any observed trend in economy and international relations. College London and the poverty and income inequality However, the precise nature of cannot be exclusively or the various mechanisms through University of Oxford. even mainly attributed to the which globalization has altered the ‘globalization’ effect as such, these pattern of income distribution and various estimates cannot dismiss the conditions facing the world’s the concerns raised that the poor are yet to be carefully analysed. globalization process may have This is because the globalization– had adverse effects on income poverty relationship is complex, distribution and on poverty non-linear, and heterogeneous, among some segments of the involving multifaceted channels. population. Indeed, while most Besides the ‘growth’ effects of objective observers would argue globalization on poverty (that Erik Thorbecke is the that globalization is likely to have is, the effects of globalization contributed to poverty alleviation on poverty transmitted through H. E. Babock Professor on a net basis, it is also known to economic growth), the integration of Economics, Emeritus, have created winners and losers process is known to create winners Graduate School at numerous levels throughout and losers directly through other Professor and former modern history. These concerns channels, affecting both vertical have generated a passionate debate and horizontal inequalities. Because Director of the Program worldwide as well as a powerful these multifaceted channels interact on Comparative Economic anti-globalization movement. dynamically over space and time, Development. The extent of controversy the net effects of globalization on surrounding this debate reflects the poor can only be judged on the the fact that globalization is not a basis of context-specific empirical process, proceeding neutrally in a studies. Cross-country studies policy vacuum; rather, it is a policy requiring precise measurements induced condition. Globalization and definition of the two key 2 Policy Brief www.wider.unu.edu concepts—globalization and of globalization and channels poverty—tend to fail to give robust through which they affect This Policy Brief is published insights into this critical nexus. Both poverty, these case studies within the UNU-WIDER concepts are multidimensional, and cover the spectrum from broad research project ‘Impact not easily captured in a composite macroeconomic regional and of Globalization on the index that may be used in a country analyses to micro-oriented World’s Poor’ directed by meaningful manner in cross-country village studies on each of the three Erik Thorbecke and Machiko comparative studies or regressions. continents. These case studies Nissanke. More detailed Building on earlier research projects, illustrate clearly that the impact findings are set out in a series UNU-WIDER initiated a project of globalization on poverty is of working papers (available to on ‘The Impact of Globalization extremely context-specific. download free at: on the World’s Poor’ in 2004, to Significant differences in initial www.wider.unu.edu): deepen our understanding of how conditions as well as distinct conditions facing the world’s poor internal dynamic processes of have been evolving under the forces institutional and sociopolitical of globalization with emphasis on change triggered by the forces the economic manifestations of of economic integration have those forces. Various channels and influenced the poor in Asia, transmission mechanisms were Latin America, and Africa in identified and explored through quite dissimilar ways. There are which the process of globalization distinctive characteristics, specific affects different aspects and to each of the three developing dimensions of poverty in the regions, shaping the ways in which developing world. This was the main globalization has affected the poor. theme of the first methodological This merits a comparative analysis and conceptual conference held of each region’s experiences with under the auspices of this project in globalization and integration. Helsinki in 2004. Naturally, any attempt at Subsequently three regional estimating rigorously the impact conferences focusing, respectively, of the globalization process on on Asia (held in Tokyo), Latin socioeconomic performance (and America (Rio de Janeiro), and Africa more specifically on poverty) (Johannesburg) were organized faces the almost insurmountable to help identify and illustrate the obstacle of the lack of a plausible differential effects of globalization counterfactual scenario. In order on growth, inequality, and to derive robust inferences, one poverty in the three continents.