Globalization, the International Poverty Trap and Chronic Poverty in the Least Developed Countries

Abstract

The argument of this paper is founded on an analytical perspective that can be summarized through three basic propositions. Firstly, the phenomenon of chronic poverty is best analysed through examination of the nature of poverty traps. Secondly, the causes of poverty can be identified at different levels of aggregation, running from the micro level (the characteristics of the household and community), up to the national level (characteristics of the country) and up to the global level (the nature of the international economy and the institutional structures which govern international relationships). As a corollary, it is possible to identify poverty traps at different levels of aggregation. Thirdly, globalisation, which is understood here as increasing interrelationships between countries, necessitates a shift in the framework for poverty analysis so that poverty at the household, community and national level is analysed in a global context. The paper applies this perspective to analyse chronic poverty in the least developed countries (LDCs). It argues that $1-a-day poverty is pervasive and persistent in most LDCs because they are caught in an international poverty trap. At the heart of this trap there are a various domestic vicious circles through which the high incidence and severity of poverty act as constraints on national economic growth, thus perpetuating all-pervasive poverty. The poverty trap can be described as international because an interrelated complex of trade and finance relationships is reinforcing the cycle of economic stagnation and generalized poverty within many LDCs, which is in turn reinforcing the negative complex of external relationships. The paper suggests that the current form of globalisation is tightening rather than loosening this international poverty trap. Section 2 briefly describes poverty trends in the LDCs. Section 3 argues that these trends are the result of economic stagnation, by looking at growth trends in the LDCs and the nature of the long-term relationship between economic growth and extreme ($1-a-day) poverty in lower income countries. Section 4 sets out elements of the international poverty trap, which is particularly relevant for commodity-exporting LDCs, and section 5 identifies ways in which the current form of globalisation is likely to be tightening rather than loosening the international poverty trap. The conclusion draws out some general policy implications.