Abstract
Around the turn of this century there were concerns about the possible adverse effects of globalization which led to a polarized debate on the plight of the world's poorest. This paper attempts to answer the question of whether or not the billions of people who still live on less than $1 a day are sharing in the benefits of greater integration among economies. The first part of the paper summarizes the channels and transmission mechanisms, such as greater openness to trade and foreign investment, through which the process of globalization could affect poverty in the developing world. Using a panel data of 35 developing countries from 1990 to 2004 an empirical examination is carried out of the impact of real and financial integration on the head count ratio and poverty gap. Results suggest that, on an aggregate level, capital flows via FDI have had an adverse effect and real trade-induced income growth had a favorable effect on the incidence of poverty. On the other hand, a policy of excessive openness to external trade without complementary support mechanisms was found to be negatively related to the depth of poverty in developing countries.
Highlights
Global circulation of goods, services and capital, along with exchange of information, ideas and people can safely be referred to as ‘Globalization’
The magnitude of expected profits. What this argument implies is the capital inflows recorded by some developing countries in not that financial openness per se is undesirable, but rather recent years and the abrupt reversals that such flows have that financial integration should be accompanied by adequate displayed at times have been associated with deep financial reforms of the domestic financial system to minimize the instability, economic crises and sharp increases in poverty adverse effects of volatility on output, employment, and rates – in countries with imprudent sovereign poverty
The dependent variables used are Headcount ratio (HC) and Poverty Gap (PG), both based on $1.08 a day international poverty lines used by the World Bank
Summary
Services and capital, along with exchange of information, ideas and people can safely be referred to as ‘Globalization’. As is common in most contentious public debates, different people mean different things by globalization Some interpret it to mean the global reach of new technology and capital movements, some refer to outsourcing by domestic companies in rich countries, others protest against the tentacles of corporate capitalism or the US (economic, military, or cultural) hegemony. I shall ignore here the important issues arising from the devastation caused to fragile economies by billions of dollars of volatile short-term capital stampeding around the globe in herd-like movements, or the substantial poverty-reducing potential of international (unskilled) labor flows from poor to rich countries (even if allowed in temporary and regulated doses).
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