II. Measuring Globalization and Poverty III. Cross-Country EvidenceGlobalization and Poverty Ann Harrison University of California at Berkeley and NBER This draft: October, 2005 Abstract: This essay surveys the evidence on the linkages between globalization and poverty. I summarize fifteen papers prepared for a National Bureau of Economic Research project under my direction, to be published in the forthcoming book, “Globalization and Poverty”. We focus on two measures of globalization: trade and international capital flows. Past researchers have argued that global economic integration should help the poor since poor countries have a comparative advantage in producing goods that use unskilled labor. The first conclusion of this essay is that such a simple interpretation of general equilibrium trade models is likely to be misleading. Second, the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place. Such complementary policies include investments in human capital and infrastructure, as well as policies to promote credit and technical assistance to farmers, and policies to promote macroeconomic stability. Third, trade and foreign investment reforms have produced benefits for the poor in exporting sectors and sectors that receive foreign investment. Fourth, financial crises are very costly to the poor. Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets. I would like to thank Pranab Bardhan, Ethan Ligon, Margaret McMillan, Branko Milanovic, Guido Porto, Emma Aisbett, Don Davis, Alix Zwane, and two anonymous reviewers for helpful comments and suggestions. 1I. Introduction In the last two decades, the percentage of the world’s population living on less than $1 a day has been halved, falling from 40 to 20 percent over the last twenty years. 1 During this period, developing countries increased their trade shares and slashed their tariffs. If we use export shares as a measure of globalization, then developing countries are now more “globalized” than high income countries.2 Yet more than 1 billion people still live in extreme poverty, and half the world’s population lives on less than $2 a day. To what extent is globalization responsible for the fall in the incidence of poverty? Are additional trade reforms likely to further improve the lives of the world’s poor? Despite the critiques of globalization by activists and the streams of editorials on the perils or promises of globalization, economists have remained largely silent. One reason is that the division of labor between academic economists is well defined: one group addresses questions of poverty, while another focuses on international trade, currency crises, multinational corporations, and other topics commonly associated with “globalization”.3 Although there have been a number of recent studies on globalization and inequality, these volumes focus primarily on distributional consequences of globalization, rather than poverty. 1 The poverty estimates in this paragraph are taken from the World Bank’s official poverty website, at http://iresearch.worldbank.org/PovcalNet/jsp/index.jsp. The 1 $ a day poverty line is actually $1.08 in 1993 purchasing power parity dollars. 2 See “Trade Liberalization: Why So Much Controversy”, by Ann Harrison and Helena Tang, in Growth in the 1990s: Learning from a decade of reform, edited by N. Roberto Zagha, World Bank, 2005. 3 There are exceptions, of course. See, for example, Bhagwati’s new book, In Defense of Globalization (2004). Bardhan’s publications on this topic include his (2000) ILO Nobel Peace Prize Lecture, published as “'Social Justice in a Global Economy”, as well as Bardhan (2003) and Bardhan (2004). See also the forthcoming book by Thomas Hertel and L. Alan Winters (editors), Poverty Impacts of a WTO Agreement: Putting Development Back into the Doha Agenda. 2Yet one of the biggest concerns of globalization’s critics is its impact on the poor. This essay, and the consequent chapters which are part of the forthcoming book Globalization and Poverty, provides an economist’s perspective on how globalization affects poverty in developing countries.4 By bringing together experts on both international trade and poverty, our goal is to bridge the intellectual divide that separates the individuals who study each of these phenomena. The fifteen studies and accompanying discussions that are part of this project ask the following questions: how has global economic integration affected the poor in developing countries? Do trade reforms that cut import protection improve the lives of the poor? Has increasing financial integration led to more or less poverty? How have the poor fared during currency crises? Do agricultural support programs in rich countries hurt the poor in developing countries? Or do such programs in fact provide assistance by reducing the cost of food imports? Finally, does food aid hurt the poor by lowering the price of the goods they sell on local markets? Several recent surveys review the evidence on the relationship between globalization and poverty (see for example, Winters et al (2004), Goldberg and Pavcnik (2004), and Ravallion (2004)). However, the authors of these surveys acknowledge that they can only review the indirect evidence regarding the linkages between globalization and poverty. There have been almost no studies which test for the direct linkages between the two.5 The few studies which do examine the links between globalization and poverty typically use computable general equilibrium models to disentangle the linkages between trade reform and poverty.6 While such research provides an important contribution to our understanding of the channels through which 4 The individual chapters may be downloaded from http://www.nber.org/books/glob-pov/index.html . 5 Winters et al (2004) write in their insightful and comprehensive survey that “there are no direct studies of the poverty effects of trade and trade liberalization.” Goldberg and Pavcnik’s (2004) excellent review points out that “while the literature on trade and inequality is voluminous, there is virtually no work to date on the
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