Impact of Globalization on the Poor in Africa, Asia and Latin America

1. Impact of Globalization on the Poor in Africa, Asia and Latin America Machiko Nissanke and Erik Thorbecke Paper Presented at the 2008 World Congress on National Accounts and Economic Performance Measures for Nations, May 12-17, 2008, Washington D.C.

2. Content of Presentation ► 1. Introduction ► 2. Channels Linking Globalization to Poverty ► 3. Regional Characteristics in Globalization- Poverty Nexus ● Comparative Globalization Experiences: Sub-Saharan Africa Asia Latin America ► 4. Strategic Policies for More Pro-Poor Process ► 5. Measurement Issues

3. 1. Introduction ► Machiko Nissanke and Erik Thorbecke Co-directed a Large Scale Research Project on “The Impact of Globalization on the World’s Poor” under the Auspices of UNU / WIDER, 2003-2007. ► Four Major Conferences: Helsinki, Tokyo, Johannesburg, Rio de Janeiro Generating about 60 Studies that Have Been or Will Be Published in 3 Books and 3 Special Issues of Journals. ► The Present Paper is Based on the Introduction to a Forthcoming Comparative Volume.

4. 1.What Is Globalization?What Are its Manifestations? Greater integration within the world economy via increased openness to: • International trade • International capital and labor movements • International flow of technology • International flow of information, knowledge, and ideas (Internet super-highway)

5. 1.Questions Often Asked • Whether the actual distribution of gains is fair? Whether the poor benefit less than proportionately from globalization – and under some circumstances might actually be hurt by it ? • The downside of globalization – Who bears most of the costs? Are they borne disproportionately by the developing world and the poor (often unskilled workers) who are more vulnerable ? • Whether changes in inequality (both ‘between- countries’ and ‘within-countries’) and the observed poverty dynamics are related to globalization?

6. 2.Transmission Channels through which Globalization Affects Poverty • Globalization affects poverty through many different channels: growth, inequality, international capital movements and labor migration, technology, information, vulnerability and institutions… • The first and most important of the mechanisms through which the process of globalization affects poverty directly and indirectly is the growth-inequality-poverty channel.

7. Distribution (Inequality) 2.The Globalization-Openness-Growth-Distribution (Inequality)-Poverty Nexus Growth - + Classical + Globalization Openness Poverty Kuznets Modern - + + Trade Capital Labor Technology Knowledge

8. 2. Additional Channels through which Globalization Impacts the Poor • Growth is the Main Channel (filter) through which Globalization Affects Income Inequality and Poverty • Other Channels through which Globalization can Produce Winners and Losers: • Changes in Relative Factor and Good Prices; • Differential Cross-border Factor (Capital and Labor) Mobility; • The Nature of Technical Progress and Technological Diffusion Process • Institutions

9. 3. Comparative Globalization Experiences ►Lack of an Appropriate Counterfactual Scenario of No or Less Globalization ►Attempt to Describe Trends in LA Socio-economic Performance that One Can Legitimately Claim Were Influenced by the Globalization Process ►General Picture is Painted with a Broad Brush to Serve as a Backdrop to Case Studies that Explore Specific Manifestations of Globalization

10. Global Comparisons of Trade Openness and p.c. GDP ( .. not available) Sources: 1. World Bank World Development Indicators, 2005 (calculated from current US$ estimates) 2. World Bank World Development Indicators, 2005 (own calculations) 3. World Bank World Development Indicators, 2005 (average annual %)

11. Poverty Trends Sources: 1. Chen & Ravallion (2004): Table 2; based on international poverty line ($1.08 1993 PPP)

12. 3.1 Globalization→Poverty in SSA ► Africa is Ahead of LA and South Asia in Terms of Trade Intensity and Represents a Clear Example that Openness is not Sufficient to Generate Economic Growth. ► Negative p.c. GDP Growth Rates in 80’s and 90’s Influenced by e. g. Poor Governance and Institutions, Geography, Fragmentation. ► Also Natural Resource Curse and Massive Exploitation of Agriculture and Dutch Disease.

13. 3.1. Globalization→Poverty in SSA ► Essentially no Structural Transformation and Diversification ► Increase in Relative and Absolute Poverty and Income Inequality ► Growth Engine Failed and Greater Inequality Further Worsened Poverty Incidence

14. 3.2. Globalization→ Poverty in Latin America ►Decade of the 1980’s: “Lost Decade”, Debt Restructuring, Liberalization, Deregulation, Privatization → Ave. Annual GDP Growth Rate 2%: Stagnation ►Decade of the 1990’s: (Re)-integration in World Economy TNCs adopt new capital-intensive technologies complementary to skilled labor and substitute for unskilled labor→ Skilled/Unskilled wage gap rises (except in Brazil). ►Increasing Income Inequality and Income Polarity

15. 3.2. Globalization→ Poverty in Latin America ►Fall in Health and Education Indicators’ Inequality Reflecting Presumably the Impact of Social Protection Schemes ( e.g. Oportunidades in Mexico and Bolsa Familia in Brazil) ►Poverty ($2 a day) Rose from 29.6% in 1993 to 31.7% in 2002 ► Informalization of Labor Force

16. 3.2. Globalization→ Poverty in Latin America ► The Combination of a Low Growth Transmission Channel further Filtered down by Greater Income Inequality and Polarization and a Technology Transfer Channel not Conducive to Unskilled Labor Employment Could not Play a Role in Reducing Poverty ► Inconsistent (Stop and Go) and Populist Economic and Monetary Policies Followed by Many LA Regime Contributed to Mixed Socio-economic Performance ► Recent Growth Spurt ( 2004-2007) 5% Growth of LA GDP. Is it Sustainable??

17. 3.3. Globalization→ Poverty in Asia ► Asia Benefited most from Dynamic Growth Effects of Globalization. ► Dramatic Fall in Poverty throughout Asia ► Successful Structural Transformation ► Exploited Dynamic Comparative Advantage. Labor-Intensive Exports and Shared Growth. Flying Geese Paradigm

18. 3.3. Globalization→ Poverty in Asia ► Pro-Poor Public Expenditures Pattern ► Large Rise in Within-Country Income Inequality ► Growth Engine so Strong that it More than Compensated Negative Effect of Inequality on Poverty

19. 3.4 Some Conclusions ►Impact of Globalization isHighly Context-Specific. ► Most Potentially Important Channel is Growth. Until very recently Growth Engine Succeeded in Asia, Sputtered in LA and Failed in SSA and was further Weakened in its Impact on Poverty by Increased Inequality. ► Technology Transfer Channel Tended to Polarize Further Income Gap between Skilled and Unskilled. ► Nonetheless Trade Liberalization Can be Potent Instrument to Raise Growth (Efficiency) and Reduce Inequality when Complemented by Safety Nets and Social Protection Schemes.

20. 4. Measurement Issues ►Poverty is a Multidimensional Concept (Following Sen’s Capability and Functioning Approach) Consisting of Income (Money-metric) and non-Income Variables. Extremely Difficult to Define Scalar Concept Capturing all Dimensions ► Imperfect but Best Proxy for now is Income ► A major Problem is that the Imputed Value of Benefits Received by Households from Public Goods and Services is Excluded from National Accounts and Survey Data. Public Expenditure Pattern can be Progressive or Regressive.

21. 4. Measurement Issues ►Of the Large Number Inequality Measures (Gini, Atkinson, Deciles, Polarization,..) which are the most Representative? ►Need for Standardization and Fruitful Dialogue between Statisticians and Economists.