Globalization lifted Vietnamese farmers out of poverty

McDonald’s identifier proves globalization reduces poverty

Being a symbol of globalization, a lot of sociological research suggests that McDonald’s presence can work as an instrument for globalization (Ritzer, 1995 and Ritzer, 1996). According to its website, McDonald’s use local or regional providers wherever possible, suggesting that the immediate effect of McDonald’s on trade flows might be small. Several findings suggest however that the presence of McDonald’s in a country over time will increase both social and economic globalization (apart from the fact that the number of McDonald’s restaurants per capita is a part of the KOF-index measure of cultural proximity).

First, the chain is typically among the first to enter new markets and its presence is likely to increase the likelihood of similar chains. For McDonald’s and Burger King this has recently been shown by Yang (2012).

Second, human’s intrinsic fear of new food items (so called food neophobia) and tourists’ tendency to seeking the ‘ontological comfort of home’ ( Quan & Wang, 2004, p. 301) suggest that the presence of McDonald’s is likely to increase tourist flows. For example Mak, Lumbers, and Eves (2012) note that the desire to seek novel food and dining experiences can be a major motivations to visit foreign destinations, but also that many tourists need a certain degree of familiarity, especially in the case of Western tourists visiting destinations in developing countries ( Cohen & Avieli, 2004). As a result, the presence of McDonald’s may not only increase tourism, but also lead to increased interaction between tourists and local food producers. ¹⁸

Third, McDonald’s tendency to adapt to the local culture is also likely to increase globalization. An example is provided by Ram (2004) who describes the opening of McDonald’s in Israel 1993. Ram describes how McDonald’s started a process that contributed to a renaissance for the local delicacy ‘falafel’, where a ‘McDonaldized’ version was standardized, branded, and marketed globally through new international franchise chains.

All the above mechanisms are likely to be stronger over time but not necessarily in a linear fashion. For this reason we use the number of years since entry as an instrument and allow this to affect globalization using a quadratic first-stage specification.

According to Lafontaine (2004) the country level entry of McDonalds is explained by GDP per capita (which is confirmed in our sample; the correlation between duration and per capita GDP is 0.6), trade openness, population size, and distance to the US. McDonald’s is often entering many additional markets at any given time in the data, and the firm does not saturate markets before entering new ones. The presence of competitors does not significantly affect the likelihood of entry. Finally, physical distance from the US has a clear and statistically negative effect on entry probabilities.

The importance of distance from the US suggests that conditional on GDP per capita, there is some exogenous variation in McDonald’s presence that can be used for identification purposes.

As shown in Table 6, our sample contains countries that were both relatively poor and not very globalized when McDonald’s entered, but it is still true that the company has not entered the poorest and least globalized part of our sample. The reasons for not doing so may be related to poverty. While we will verify that the instrument is not correlated with poverty when included in the baseline regression, the obtained results will be the local average treatment effect (LATE) that differs from the average effect of interest, unless responses to globalization are homogenous—which is unlikely.

Figure 3 further shows that there is quite some variation in McDonald’s presence across countries. The average years of the presence of McDonald’s in our full sample is six years with a standard deviation of 8.5. In 2005 McDonald’s was present in half of the countries in our sample (Figure 3 does not include countries where they were not yet present in 2005) and in many countries the company launched their first restaurant during the time period we study.

As a complement to the McDonald’s instrument, we also use a second instrument: preceding average level of economic globalization in neighboring countries. As shown by Gassebner, Gaston, and Lamla (2011), there are geographical spill-overs (or peer effects) in market-liberalizing reforms, such that a country is likely to be more open if its neighbors are more open. It is unlikely that absolute poverty in a neighboring country directly affects globalization of the neighbors—especially as this globalization measure temporally precedes the poverty indicator. A similar IV-strategy has previously been applied by for example Eichengreen and Leblang (2008) and de Soysa and Vadlamannati (2011) who both instrument variables of openness with lagged values of openness of neighboring countries.

Economic globalization in neighboring countries is collected from Dreher et al. (2008). We define two countries as neighbors if they share a land or maritime boundary, the latter as recognized by the United Nations Convention on the Law of the Sea. However, territories are not classified as neighboring countries.¹⁹

We follow our baseline setting by using both neighbors’ average globalization and globalization squared, and the years of McDonald’s presence and its square in the IV-estimations. Moreover instruments are lagged one period with respect to globalization.

(b). Testing the instruments

Having discussed several theoretical aspects of our instruments, we proceed to test their validity on our data. Following the approach in Dutt, Mitra, and Priya (2009) who instrument trade policy by the number of years a country has been a GATT/WTO member since the GATT was founded, we use a pooled sample.²⁰

As shown in Table 7, estimations using OLS on a pooled sample (including country dummies) generate results very similar to baseline results using panel data, although the magnitudes of the estimated coefficients are slightly smaller.

To assure that our instruments are unrelated to poverty, we include them in our baseline specification. The results in Table 8 show that both instruments are unrelated to poverty, that they add no explanatory value, and do not change the baseline coefficients on globalization very much.

Next, we verify that the instruments are powerful in predicting globalization. Table 9 shows the results from the first-stage regression estimating the relationship between the two instruments and the various measures of globalization, controlling for GDP per capita and including country dummies. Based on the F-tests and the size of the coefficients, the instruments seem to do a good job of predicting all globalization indicators except personal contacts.

Finally, Table 10 presents the second-stage regression results, where predicted globalization levels from the first stage are used to estimate the effect on absolute poverty. The baseline finding that globalization reduces poverty is confirmed. Note however that the Sargan-statistics indicate problems for trade flows, personal contacts, and cultural proximity, suggesting that instruments are not valid for these dimensions of globalization. Importantly, the instruments work well for trade restrictions and information flows, and confirm the baseline findings that these dimensions of globalization negatively relate to absolute poverty.²¹

Poverty reduction can be achieved through globalization

5. Conclusions

We set out to test the links from globalization to poverty reduction, and our results are coherent enough to identify some interesting patterns. Globalization correlates negatively with absolute poverty both across countries, in a panel with fixed effects, and in a longer first difference regression. While we cannot be certain that our results are causal, two different instrumental variable approaches support our baseline findings.

The size of the effect in our baseline panel estimate is not remarkable. For example, consider the case of Bangladesh. During 1980–2000, the country increased its KOF value from 17 to 38. According to the long-run estimates in Table 5, this translates to a reduction of absolute poverty by about 11 percentage points, which roughly means that it takes a two standard deviation increase in globalization to decrease poverty by half a standard deviation. Overall, the absolute value of the instrumented coefficients in Table 10 are slightly bigger than the OLS coefficients in Table 7, suggesting that ordinary least square estimates can be considered a lower bound for the magnitude of the poverty effect of globalization.

Looking closer at the factors included in the KOF index, less trade restrictions and larger information flows are robustly associated with lower poverty levels. A likely explanation for the importance of trade restrictions is that these matter for import prices.

Analyzing trade flows only, the standard approach in the globalization-poverty nexus (assuming that trade increases growth and that growth reduces poverty), holds up well. In both the short-run and long-run analysis, we find that higher trade flows are on average followed by lower poverty, but the effect is no longer significant once we control for income or growth. The fact that trade restrictions turn out to be more robust than trade flows should however probably be carefully interpreted: Deaton (1995) notes that trade data may be biased upward due to over-invoicing of imports, a method often used to transfer funds abroad from low-income countries, causing a systematic bias in trade data and in national accounts.

For both trade restrictions and information flows, a relatively large poverty-decreasing effect remains after controlling for GDP per capita, suggesting that the standard approach actually underestimates the poverty-reducing impact of globalization. A possible explanation to this is that there are income distribution effects such that the incomes of the poor increase more than the average income. Another possibility is that the result follows from measurement errors in the GDP data. As discussed by e.g., Heston (1994), productivity increases in the subsistence sector and the informal sector are often insufficiently captured in GDP data.²²

Our results leave room for cautious optimism. Although the fact that many low-income countries embarked on programs of external economic liberalization in recent decades has been intensely debated, our analysis suggests that the underlying premises of current and previous poverty reduction strategies are correct: poverty reduction can be achieved by means of closer economic integration and higher levels of globalization.

Globalization benefitted the poor in Argentina

F. Wu, economist, Cardiff University, 2012, International Encyclopedia of Housing and Home, “Globalisation,” pp. 292-7

De la Fuente examines the globalization effects on the poor through one of the manifestations of migration, namely, through the channel of international remittances. The paper focuses on Mexico where the flow of remittances from largely US based migrants has become the dominant source of foreign exchange revenues. The author tests a popular claim that international remittances could become a massive resource transfer mechanism to reduce poverty levels by increasing incomes of poorer households. To verify this claim, the paper examines whether people who are most vulnerable to shocks and falling into poverty would be likely to receive remittance transfer or not. For this purpose, a “vulnerability to poverty” index (the VTP index) is formulated and computed. This index is a forward looking measure of the magnitude of the threat of future poverty that a household might experience—computed from a household panel data set extending from October 1998 to November 2000. The VTP index is then used as an explanatory variable, along with other characteristics (household sociodemographic characteristics as well as both idiosyncratic and covariant risks that households face), in a series of Probit and Tobit models of remittance transfers.

De la Fuente’s analysis of the panel data derived from household surveys shows that national and transnational support available to the rural poor through remittances is surprisingly low and transfers are not going to the poorest members in rural communities in Mexico. His econometric estimation results further reveal that an increase in the threat of future poverty that rural families could experience (a higher VTP) actually reduces their likelihood of receiving transfers, including foreign remittances. On the basis of these results, the author concludes that though remittances are perceived increasingly as one of the main positive effects of globalization on the rural poor, facilitating foreign remittances for rural recipients should not be considered a safety valve against poverty nor a substitute for the introduction of publicly funded schemes of social protection coupled with improvements in economic opportunities for the rural poor.

Aguayo-Tellez, Muendler, and Poole examine how factors relating to globalization affect an individual decision to migrate internally within Brazil, where only 66% of its labor force held a formal sector job in 1997, and considerable economic disparities across regions continue to prevail. The level of per capita GDP in the southern regions is more than triple that in the northern regions. The authors argue that while interstate migration has a long history in Brazil typically with massive flows of internal migration from the northern regions to the urban centers in the Southeast and Brasilia, an accelerated rise in FDI and export activities in the process of increasing integration into the global economy, following the dramatic market-oriented policy reforms, has contributed to a spurt in internal migration of formal sector workers to lower income regions. This migration spurt occurred within the Southern states already endowed with a high concentration of well-established firms, as well as from the South and Southeastern states to the Northeastern state, where many foreign-owned and exporting firms started to locate their operation.

Aguayo-Tellez et al. examine this new pattern of surged interstate migration among former sector workers, using a uniquely matched employer–employee data set across all states of Brazil for 1997–01. Their analysis shows that prospective employment at a foreign-owned establishment exerts a positive and significant pull effect on formal sector internal migration flows. They found that rather than responding to the spot wage differentials, a worker’s decision to migrate is likely to be made on the expectation of a steeper wage path, human capital accumulation, or other forms of nonpecuniary compensation at a destination establishment, the majority of which is foreign owned. Thus, they conclude that globalization acts on internal migration through the growth of foreign-owned firms and employment opportunities as a pull factor. This process was facilitated by the expansion of infrastructure investments and export promotion programs in the North, Northeast, and Center-West regions following trade liberalization in the 1990s, leading to a reduction in regional disparity and income inequality.

Macours and Vakis explore the impact of seasonal migration on early childhood development within the context of a poor shock-prone border region in rural Nicaragua. The authors show that seasonal migration can play an important role in protecting early cognitive development of pre-school children in poor areas suffering from severe malnutrition problems. Paradoxically and somewhat counter-intuitively, they find strong evidence that mothers’ migration has a positive effect on early childhood development while fathers’ migration does not. At least two factors account for this unexpected result: seasonal migrant mothers tend to bring more migration income home, possibly allowing them to allocate more income on children’s welfare through a direct income and indirect empowerment effect (women as decision-makers in contrast to men tend to allocate a larger share of their budget to nutrition and child care). The income and empowerment gains of migrating mothers appear to more than offset the potential negative effects on early child development that could result from temporary lack of parenting (most children of migrant mothers were left in the care of their grandmothers). The evidence in this paper illustrates how one aspect of globalization, that is, increased opportunities in seasonal migration, because of higher South–South mobility, might positively influence early childhood development, and as such long-term poverty reduction. An indirect implication of the findings is that a conditional transfer program targeted to mothers in times of shocks might be particularly effective in fostering the growth of children. In a more general sense, freeing the movement of people across regional borders can also help create more flexible regional labor markets that allow increasing production of goods for which the region has a comparative advantage.

Exposed to powerful globalization forces, many developing countries tend to go through sharp business cycles of boom and burst. Argentina’s experience in the recent past typifies such a condition. Fields and Sánchez Puerta examine earning mobility in urban Argentina during the period of 1996–03—a most tumultuous period. In particular, they analyze, using a series of one year long panels, who gained the most in pesos when the economy grew and who lost the most in pesos when the economy contracted. Specifically, the authors test two hypotheses: (a) whether mobility was divergent, that is, whether the largest earnings gains went to those who were initially better-off and (b) whether those individuals who gained the most in times of economic growth are the same as those who gained the most in times of stagnation or recession.

Their empirical analysis shows that the pattern of earnings changes is mostly convergent, occasionally neutral, and never divergent, that is, the earnings dynamics observed for this period in Argentina show that the initially low earners do at least well, often very much better than the high earners. While their results challenge typical findings of rising inequality from cross-sectional analysis, they argue that the rising inequality and the convergent mobility are reconcilable, since the widespread and sometimes large earnings changes for individuals are concealed from cross-sectional data analysis of inequality. Hence, they conclude that the picture of economic growth in Argentina is much more pro-poor in that period than what one gets from cross-sectional inequality comparisons.

Globalization reducing poverty in China

Stephanie Rugolo, May 30, 2014, CATO, “Globalization Eradicates Poverty,” http://www.cato.org/blog/globalization-eradicates-poverty DOA: 1-1-15

The Malaysia Chronicle and The Economist recently reported on how globalization is improving the lives of Chinese villagers. Consider this example:

Taobao is an online retailer like Amazon. There are few qualifications to open an online store with Taobao. Chinese villagers, having little more than their cheap labor to offer, sell handicrafts on the website. The villagers get paid for their work and amass greater opportunities in return, while money and prosperity flow into their previously sleepy villages.

Globalization is making Chinese villagers richer, contrary to critics who claim that globalization generates poverty.  

Interconnected, free markets generate wealth and pull people out of poverty. This occurs as the connective technologies of globalization (like the Internet) increase competition. That benefits consumers who can buy more, increasingly inexpensive products to better their quality of life. That also creates innovation and employment, as is the case for Chinese villagers.

Globalization reduces poverty

Jan Cienski, 2011, Globalization Cures Poverty: Study, https://www.globalpolicy.org/component/content/article/162/27754.html DOA 1-2-15

Globalization is responsible for dramatically reducing the number of abjectly poor people around the world, according to a new study that contradicts the claims of skeptics who say it has worsened global poverty.

"On average economic growth is good for the poor, and trade is good for growth," said the study by the London-based Centre for Economic Policy Research.

The study, prepared for the European Commission by a group of respected economists who surveyed existing literature and studies on globalization, was unambiguous in saying that almost every criticism levelled by free trade's skeptics is wrong.

Many globalization critics are "poorly informed about the historical record, and appear not to be aware of the contribution played by globalization in the struggle against poverty," the study's authors say.

They say closer economic ties between countries, reduced tariffs and greater flows of investments have made the most startling impact on global poverty.

While acknowledging the number of poor people in the world remains "disturbingly high," the study says that in 1950 about 55% of the world's population lived on less than US$1 a day (in constant, inflation-adjusted dollars). By 1992, only 24% of the world's population had to make do with that tiny amount. During that time the number of poor remained static at about 1.3 billion people, while the global population grew rapidly.

"The proportion of the world's population living in absolute poverty is lower now than it has ever been," the report says.

The study echoes a recent World Bank report which found the degree of an economy's openness is closely linked to its standard of living.

The support for the often-controversial position of continuing to lower tariffs and expand free trade was a little much for the European Commission, which represents governments of various stripes and stressed that the study was not its official position.

"In many respects, the findings will prove controversial, at least to those outside the circle of professional economists, contradicting as they do certain deeply held beliefs about the negative consequences of globalization," wrote Romano Prodi, the European Commission President.

The study notes that, while there are fewer people in abject poverty, the gap between average incomes in rich and poor countries is wider.

Improved communications has had the perverse effect of undermining the case for globalization because "the poor that remain, though a shrinking proportion of the whole population, are more than ever aware of their relative deprivation."

Technology also makes it easier to draw attention to the startling discrepancies in world incomes.

The study takes issue with the slogans of protesters at anti-globalization rallies, like the one in Calgary during last month's G8 summit at Kananaskis, Alta.

Critics charge globalization with increasing inequality, polluting the environment, exploiting workers, undermining the ability of governments to raise taxes to provide health care and welfare and with causing economic instability.

Untrue, according to the study.

"Many of the charges against globalization are misguided," says the study, which says that while globalization does carry some costs, they are more than outweighed by the benefits.

The drumbeat of protest about manufacturers such as Nike and the Gap using Third World sweatshops to make their products actually harms the workers in those factories.

While a salary of $5 a day may seem "shockingly poor" to protesters in rich countries, that is often five times more than the workers would have gotten by staying in traditional industries such as agriculture, the study says.

Although there is some proof that countries exporting energy and natural resources such as timber underprice those products, causing environmental harm, there is no evidence of a "race to the bottom" in wages or environmental standards.

Many critics contend that corporations will relentlessly hunt for the cheapest place to do business, forcing richer countries to gut their social safety nets and environmental rules to match those of the lowest-cost country.

"If low wages alone were enough of an attraction, more [investment] would have flowed to the poorest countries in Africa, rather than predominantly to a small number of middle-income countries in Asia and Latin America," it says.

In fact, it is in Africa that the study finds the weakest international performers, and failed economies that drag down the statistics for the rest of the world.

Recognizing that skeptics often make a better case than the proponents of deeper globalization, the study recommends that rich countries do a better job of explaining the benefits of globalization or else risk a backlash similar to the one that ended the last burst of freer trade that lasted from 1870 to 1913.

The study also recommended the wealthiest nations commit to lowering tariffs and subsidies for agriculture and textiles, which would boost incomes of the poorest workers and farmers, and also increase their foreign aid to 0.7% of GDP.

Currently, only Scandinavians, Luxembourg and the Netherlands give that much. Canada gives only 0.24% of GDP in aid, while the United States gives only 0.1% of GDP.

The study's optimistic conclusions were discounted by globalization skeptics, who saw it as one of a host of biased reports aimed at confirming the reigning orthodoxy.

"For the last 25 years, globalization has been heavily tilted in favour of banks and investors and against the interests of working people," said Robert Scott, an economist at the Economic Policy Institute, a left-leaning Washington-based think-tank.

He charged that the numbers showing poverty reduction were skewed by the exceptional cases of China and India. Removing those two huge nations creates a much more ambiguous case for globalization and shows dramatic increases in global inequality, Dr. Scott said.

"The evidence shows that unregulated capital and trade flows contribute to rising inequality and impede progress in poverty reduction," a new Economic Policy Institute study said."

Globalization hurts the poor

Anish Bharadwaj, 2014, International Max Planck Research School for Competition and Innovation, Munich Centre for Innovation and Entrepreneurship Research, Advances in Economics and Business

2(1): 42, p. 42-57
It is actually not very difficult to think of a number of channels through which the process of globalization may hurt the poor. Even some of the most ardent “pro globalization” advocates would admit that, for instance, trade reform in developing countries may lead in the short run to higher unemployment and greater poverty. This could be as a result of pervasive labor market distortions -- such as a low degree of wage flexibility and imperfect labor mobility across sectors (Agenor, 2004). In this section I want to emphasize, without trying to be exhaustive, the possibility that globalization may affect poverty adversely in the long run as well.

Globalization benefits exporters and lowers prices

Washington Times, October 6, 2014, “Economic Globalization Boosts Asia, bogs down US Middle Class,” http://www.washingtontimes.com/news/2014/oct/6/economic-globalization-boosts-asia-bogs-down-us-mi/?page=all DOA: 1-2-14

LDCs have the most to gain from engaging in the global economy. First, they gain access to much larger markets, both for imports and exports. On the import side, consumers gain access to a dramatically larger range of goods and services, raising their real standard of living. Domestic producers gain access to a wider range and better quality of intermediate inputs at lower prices. On the export side, domestic industries can enjoy a quantum leap in economies of scale by serving global markets rather than only a confined and underdeveloped domestic market.

Globalization improves living standards

Washington Times, October 6, 2014, “Economic Globalization Boosts Asia, bogs down US Middle Class,” http://www.washingtontimes.com/news/2014/oct/6/economic-globalization-boosts-asia-bogs-down-us-mi/?page=all DOA: 1-2-14

Any casual survey of the world today will confirm that nations relatively open to trade tend to be more prosperous than nations that are relatively closed. The wealthiest nations and regions of the world- -western Europe, the United States, Canada, Japan, Hong Kong, Taiwan, South Korea, Singapore—are all trade-orientated. Their producers, with a few notable exceptions, must compete against other multinational producers in the global marketplace. In contrast, the poorest regions of the world—the Indian subcontinent and sub-Saharan Africa—remain (despite recent, halting reforms) the least friendly to foreign trade. And those countries that have moved decisively toward openness—Chile, China, and Poland, among others—have reaped real (and, in the case of China, spectacular) gains in living standards.

Systematic studies confirm a strong link between openness and economic growth.8 A study of 117 countries by Jeffrey Sachs and Andrew Warner found that open economies grew much faster than closed economies. Specifically, the authors found that the developing countries that maintained open economies throughout the 1970s and ’80s grew at an average annual rate of 4.5 percent, compared with an average growth rate of 0.7 percent for closed economies. As a result, the open developing economies tended to converge toward the slower-growing rich economies, while relatively closed economies did not converge.9

A more recent study, by Jeffrey Frankel and David Romer, produced similar results. The authors found that trade exerts “a qualitatively large and robust E positive effect on income.” In their study of 150 countries, they concluded that increasing the ratio of trade to gross domestic product by 1 percentage point raises income per person by between 0.5 and 2 percent.10 The Organization for Economic Cooperation and Development (OECD) concluded that nations relatively open to trade grew on average twice as fast as those relatively closed to trade.11

Globalization reduces poverty

Washington Times, October 6, 2014, “Economic Globalization Boosts Asia, bogs down US Middle Class,” http://www.washingtontimes.com/news/2014/oct/6/economic-globalization-boosts-asia-bogs-down-us-mi/?page=all DOA: 1-2-14

Globalization offers hope to the world’s poorest. Just as more open trade tends to promote economic growth, growth in turn leads to poverty reduction. A World Bank study found that periods of sustained economic growth are almost always accompanied by reductions in poverty. Specifically, the study found that poverty fell in 77 of the 88 decade- long periods of growth covered by the survey.12

The greatest reductions in poverty in the last twenty years have occurred in nations that have moved decisively toward openness and domestic liberalization. The most spectacular gains have been realized in East Asia. Between 1993 and ‘96, the number of people living in absolute poverty—what the World Bank defines as less than $ 1 per day— declined in the region from 432 million to 267 million. In China alone, the number of poor people so defined fell by 150 million between 1990 and ‘97.13 The 1997—98 financial crisis that began in East Asia brought a temporary halt to this progress, but poverty rates in the hardest-hit countries—Korea, Thailand, and Indonesia—have begun to decline back toward their precrisis levels. Globally, the number of people living in absolute poverty has declined in the 1990s to an estimated 1.2 billion in 1998.14

Globalization facilitates the spread of modern medicine, which has helped to extend life expectancy and reduce infant mortality in rich and poor countries alike. On average, life expectancy in developing countries rose from 55 years in 1970 to 65 years in 1997. This good news is tempered by the fact that life expectancy has actually fallen in thirty-three LDCs since 1990, in large part because of AIDS epidemics, and remains far behind the OECD average of 78 years. Infant mortality rates in Asia and sub-Saharan Africa have fallen by about 10 percent since 1990.15

Opponents of globalization try to blame poverty in the world on the spread of trade and investment liberalization. But those regions where poverty and inequality have been the most visible and intransigent for decades—Latin America, sub-Saharan Africa, and the Indian subcontinent—for most of that time self-consciously followed policies of economic centralization and isolation.

Globalization benefits poor countries

Washington Times, October 6, 2014, “Economic Globalization Boosts Asia, bogs down US Middle Class,” http://www.washingtontimes.com/news/2014/oct/6/economic-globalization-boosts-asia-bogs-down-us-mi/?page=all DOA: 1-2-14

Evidence of a similar trend exists among countries that have chosen to join the global economy. A 1998 study sponsored by the WTO found that global trade and investment flows have actually become less concentrated in the last two decades when adjusted for the growth in world trade. Moreover, the authors found that the concentration of trade and financial flows has fallen among countries that have more rapidly liberalized, whereas it has increased among those that have integrated more slowly. “We argue this shows that marginalization of individual countries from world markets can be mostly explained by inward-looking domestic policies,” they concluded, “and therefore that marginalization is not inherent to the globalization process.”26

Of course, the advanced economies have not always been helpful. Despite progress in the post-war era, advanced-economy trade barriers remain stubbornly high against clothing, textiles, and agricultural goods, the very products in which LDCs have a natural comparative advantage. A recent study by Thomas Hertel of Purdue University and Will Martin of the World Bank found that the average tariff that rich countries impose on manufacturing goods from poor countries is four times higher than the average tariff rich countries impose on each other’s goods.27 One of the many disappointments left in the wake of the failed WTO talks in Seattle has been the indefinite postponement of negotiations to lower barriers to poor-country exports. It would be wrong, however, to blame advanced-country trade barriers for the lack of economic progress in so many LDCs. After all, the Four Tigers of East Asia managed to hop on the income-convergence conveyor belt in the face of advanced-country trade barriers that were even higher than they are today.

For poorer nations, the global economy has become like one of those giant conveyor belts that speed passengers through airport terminals. Globalization can accelerate a country’s development, but only if its policymakers allow its citizens to hop onboard by opening the economy to international trade and investment. This conveyor belt of growth provides new technology, investment capital, domestic competition, expanding export markets, and powerful incentives for further domestic policy reform. The result is faster growth and dramatic improvements in living standards within a generation or two—as we have seen most strikingly in the Far East. The fact that some nations insist on walking their own, uphill, isolated, and often dead-end path is not the fault of globalization but of their own policymakers.

The story of income inequality within nations is more complicated. The trend within the United States and other developed nations has been toward a wider earnings gap between the lowest- and the highest-paid workers. The gap has been driven primarily by a difference in worker skills rather than by international trade. An information-based economy will naturally produce jobs that require more specialized and technical skills than a less developed economy, which is more weighted toward agriculture and industry. As a result, in the United States in the last twenty-five years, the gap in income has been increasing between workers with college degrees and those with only high school diplomas.

International trade has probably contributed something to this trend in the United States, because trade should in theory accelerate the transition toward industries that rely more intensively on high-skilled labor. But the primary engine of change in the U.S. economy during that time has been technological innovation.

The relatively larger importance of technological change compared with trade can be seen in recent trends of job displacement. U.S. Labor Department surveys show that three-quarters of Americans displaced from their jobs in 1995—97 were working in sectors of the economy that are relatively insulated from trade.28 Even in the more trade-intensive manufacturing sector, technological change rivals trade as the principal engine of labor-market change. International trade is often blamed for job displacement in manufacturing when in fact the cause is rising productivity. This explains why the number of workers employed in manufacturing in the United States has remained stable in the 1990s at slightly more than eighteen million, at a time when manufacturing output has been rising an average of 3.8 percent a year in the decade (and 5.5 percent a year since 1994).

As with employment, technology is also the chief explanatory variable of changes in income inequality. William Cline, in a study on the impact of trade on wages, concluded that international trade and immigration “are unlikely to have been the dominant forces in rising wage inequality.”29 After surveying the literature and employing his own Trade and Income Distribution Equilibrium model, Cline concludes that skills-based technological change is by far the largest identifiable contributor to the growth in income inequality. International trade and immigration together “contribute only about one-tenth of the gross (total) unequalizing forces at work over this period.”30

If curbing inequality is the aim, trade policy is a poorly suited instrument for achieving it. The right response to this growing demand for higher skills is not to stifle change through trade barriers but to raise the general skill level of the workforce. Instead of a futile effort to “save” the jobs of yesterday, the focus should be on preparing workers to meet the rising demands of the labor market for specialized skills.

Globalization reduced poverty in Nigeria

Okungbowa, Florence. O. Ewere, Eburajolo, Ose Courage, Benson Idahosa University

Department of Economics, Banking and Finance Benin-City, Nigeria, September 2014, International Journal of Humanities and Social Science, Globalization and Poverty Rate in Nigeria; An Empirical Analysis, http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/13.pdf DOA: 1-2-15
This study investigated the relationship between globalization and Poverty rate in Nigeria. The study employed the two basic channels theory to explain the relationship that exists between globalization and poverty rate within the Nigeria context. The study adopted a co-integration and error correction modeling techniques on an annual time series data within the periods of 1981 – 2009.A unique co-integration between poverty rate and the explanatory variables in the study is found. In order to determine the short-run dynamics around the equilibrium relationship, we estimated an error correction model (ECM). The empirical findings in this study shows that an

increase in openness by (1) one unit will bring about a decline in poverty rate by 0.46209 percent in the current period showing a negative relationship. However, openness has a positive and significant impact on poverty in Nigeria during the period under study. Domestic investment (INV) was statistically significant and has a positive impact on poverty reduction, the current value of FDI responded negatively in terms of relationship and insignificantly to poverty in Nigeria, whereas, the first lagged FDI was statistically significant and also negatively related to poverty. This however shows delayed response. The results of the study suggest the need for

Government to encourage globalization, by embarking on trade liberalization policies in order to accelerate and sustain industrial growth and in turn reduce poverty also bearing in mind the growth and development of home industries which is also paramount to development, government should make sure that the globalization process is implemented in a gradual pace. As rapid globalization could be disadvantageous to industrial growth and this can in effect or breed more poverty.

Reducing foreign investment in Nigeria increases poverty

Okungbowa, Florence. O. Ewere, Eburajolo, Ose Courage, Benson Idahosa University

Department of Economics, Banking and Finance Benin-City, Nigeria, September 2014, International Journal of Humanities and Social Science, Globalization and Poverty Rate in Nigeria; An Empirical Analysis, http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/13.pdf DOA: 1-2-15
Nnadi (2010) concludes that globalization has significantly affected Nigeria’s Economic growth through the decline in Foreign Direct Investment (FDI). This according to him can result to high rate of unemployment, poverty and inequality and that for such aforementioned problems to be alleviated there will be need for a change in the dominant economic policies of the country. So by implication the work reveals a positive relationship between globalization and poverty in Nigeria because a decline in the inflow of foreign investors can trigger or even breed poverty.

More globalization in Nigeria means more poverty reduction

Okungbowa, Florence. O. Ewere, Eburajolo, Ose Courage, Benson Idahosa University

Department of Economics, Banking and Finance Benin-City, Nigeria, September 2014, International Journal of Humanities and Social Science, Globalization and Poverty Rate in Nigeria; An Empirical Analysis, http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/13.pdf DOA: 1-2-15
This study investigated mainly the relationship between trade openness (globalization) and poverty rate in Nigeria. In the empirical investigation of aggregate function of poverty in Nigeria, co-integration and error correction estimation were done. In order to determine the short-run dynamics around the equilibrium relationship, we estimated an error correction model (ECM). The empirical findings in this study have it that there is an inverse and significant relationship between trade openness and poverty rate in Nigeria, poverty responds positively, but insignificantly to external debt in Nigeria, poverty reacts positively and significantly to domestic

investment in Nigeria. Even though the result of the study shows that globalization brought about a reduction in poverty rate in the period under study while poverty is still visible in the country, the policy implications that the result suggest are: The need for Government to encourage globalization, by embarking on trade liberalization policies in order to accelerate and sustain industrial growth and in turn a reduce poverty. They should also monitor the movement of factor inputs as well as imported and exported goods both in and out the country by way of creating a well secured boarders across the country and a strong and efficient Custom Officials. Government also bearing in mind the growth and development of home industries which is also paramount, should make such that the globalization process is implemented in a gradual pace. As rapid liberalization could be disadvantageous to industrial growth and this can in effect breed more poverty.

To the financial institutions, they should put measures in place to encourage more financial openness. Although study has revealed that financial globalization plays vital role in the reduction of poverty. (Ogbuaku et al 2006). But the positive impact of financial openness is not strong enough to bring about a massive reduction of Poverty in the country. Meaning that the impact of trade openness on poverty appears to be more compare to financial openness.

Resource extraction destroys the future economic prospects of developing countries

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

No economic sector offers such a stark reminder of the devastation that capital causes in its relentless pursuit of profit than the extractive sector. Encompassing oil, gas and mining in their various forms, the extractive industries are unrivalled in the intensity of social and environmental devastation they cause to local communities and regions. The ‘resource curse’ that has blighted so many economies which become over-reliant on their natural wealth endowment is a constant threat, and only the most incautious commentator would suggest that foreign investment from extractive transnationals offers host countries unalloyed benefit. Yet at the same time, few sectors are heralded as being so important for the long-term prospects of their host economies, if only the involvement of private capital (and especially foreign capital) can be properly managed. For the countries of Africa, a continent which still relies on fuels and mining products for two thirds of its total merchandise exports, the successful exploitation of strategic natural resources is still seen as critical to future economic prospects. 1 The unique threat posed by the extractive industries to host populations was affirmed by Professor John Ruggie in the early days of his mandate as UN Special Representative on human rights and transnational corporations (TNCs). In his first interim report of February 2006, in which he presented an overview of the 65 cases of corporate human rights abuse he had examined from 27 countries around the world, Ruggie noted: The extractive sector – oil, gas and mining – utterly dominates this sample of reported abuses with two thirds of the total … The extractive industries also account for most allegations of the worst abuses, up to and including complicity in crimes against humanity. These are typically for acts committed by public and private security forces protecting company assets and property; large-scale corruption; violations of labour rights; and a broad array of abuses in relation to local communities, especially indigenous people … The extractive sector is unique because no other sector has as enormous and as intrusive a social and environmental footprint. Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 1590-1594). Pluto Press. Kindle Edition.

Globalisation drives down wages and labour standards

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

If the extractive sector is the site of the most intense confrontations between transnational corporations (TNCs) and local communities, the garments sector is the most familiar example in the public eye for capital's continuing exploitation of labour – and especially women's labour. As a result of ongoing struggles by trade unions in garment factories of the global South and parallel campaigns in countries of the North, it is now commonly recognised that the relocation of clothes production outside the core capitalist economies has allowed brand names and retailers to maintain high profits at the expense of workers’ rights. As a result, the garments sector has become the defining example of how the process of globalisation has enabled capital to drive down wage costs and labour standards while evading all prospects of binding regulation.

Globalisation has created poverty in the garment industry

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

Yet the promise of the globalised garments industry has not materialised, as a direct result of its imprisonment within the framework of global supply chains dominated by capitalist relations of production, or ‘networked capitalism’. 1 The garments sector is a stark example of a buyer-driven value chain controlled by brands and retailers that are able to dictate terms to suppliers as a result of their overwhelming market power, ensuring that they also capture the greater part of all gains arising from globalised production. 2 Consequently, as this chapter will show, the emancipatory potential of employment in the garments sector has been largely negated as a result of TNCs’ drive to keep labour costs low and their requirement that supplier factories meet increasingly unrealistic production deadlines. These demands have led to women employed in the garments sector being condemned to insecure, low paid and dangerous jobs, their working lives characterised by exploitation rather than empowerment. Only the struggles of the workers themselves, backed up by worldwide campaigns against the brands and retailers ultimately responsible for their abuse, have managed to challenge the power relations that underpin the system. Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 1957-1966). Pluto Press. Kindle Edition.

Globalisation undermines worker unions so they can’t fight against the worst part of wage reductions

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

Yet the central contradiction of all outsourced production networks is that while workers and their trade unions may confront the immediate failure of factory owners and national governments to guarantee decent working conditions and a living wage, ultimate responsibility rests not at the national level but with the buyers and retailers that control the global supply chain and dictate the terms of its operation. Those who hold power over the value chain are removed from the locus of production itself, and thus insulated from any direct challenge on the part of labour – this being the essential advantage of all outsourced production, reinforced in the final analysis by the ease with which buyers can end a relationship with any particular supplier and take their business elsewhere. Faced with this most extreme form of capital mobility, individual associations of workers are constrained in what they can achieve at the factory or national level, and can only hope to mitigate the worst excesses of the system. As Jeroen Merk describes it, ‘even if workers succeed in organising themselves and want to enter into collective bargaining, they discover that they are bargaining with the wrong people, namely local capital itself subordinated to the dynamics of global capitalism’. 42 Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 2222-2224). Pluto Press. Kindle Edition.

Globalization of agriculture creates food poverty

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

The global food regime exemplifies in its starkest form the challenge posed to the peoples of the world by the endless process of capitalist accumulation. As with the garments sector, the production, distribution and consumption of food are already dominated by a small number of giant transnational corporations who seek to determine what is grown and what is eaten in all corners of the globe. As with the extractive sector, capital has become increasingly aggressive in its attempts to appropriate the natural resources necessary for its further expansion: land, seeds, water and the genetic building blocks of life itself. These ‘new frontiers’ of primitive accumulation have in turn generated a modern day gold rush of hedge funds, pension funds, sovereign wealth funds and private equity funds desperate to buy into the latest asset classes following the bursting of their dotcom and housing bubbles. The renewed ‘scramble for Africa’ is just the most visible example of a phenomenon that is tearing across the planet as a whole. The direct challenge posed by such speculative activity has galvanised a worldwide movement of peasant farmers, fisherfolk, landless workers and indigenous peoples determined to defend their lands and their livelihoods from the depredations of foreign investors. More than just a force of resistance, however, the movement has developed its own positive framework of food sovereignty to set against the dominant capitalist model of dispossession and exploitation. The principles of food sovereignty, described more fully below, provide the framework under which communities retain the right to develop their own models of farming on agroecological lines, and to explore constructive alternatives to a global system that has delivered great gains to agribusiness but failed in all social and ecological respects. 1 The full extent of that failure was brought to international attention in 2009 when the UN's Food and Agriculture Organisation (FAO) reported that, for the first time in human history, over a billion people were officially classified as living in hunger. The FAO stressed that this scandal was not a result of limited food supplies, in that the previous two years had seen record levels of cereal production, but a direct consequence of poverty and economic disempowerment of those who could no longer afford the food available. 2 The backlash that met the publication of the one billion figure led the FAO to suspend further statistical pronouncements on global hunger until 2012, when its annual State of Food Insecurity report recorded instead that 868 million people should be considered ‘chronically undernourished’. Yet the FAO itself acknowledged that this headline figure ‘should be deemed a very conservative indicator of hunger’ as it relates only to those who fail to secure the minimum intake of calories required to support a ‘sedentary’ lifestyle. When set against the minimum level of calories needed to sustain a lifestyle of ‘normal activity’, the FAO estimated that 1.52 billion people are without enough food, while for the level needed to sustain ‘intense activity’ the FAO estimated that as many as 2.56 billion people have an inadequate food intake – substantially more than the corresponding figure for the same category in 1990.3 The conclusion that more working people around the world are now suffering from insufficient food than 20 years ago corresponds to the indicators of growing inequality and reduced share of national income returning to labour that were noted in Chapter 2. Yet the ultimate scandal is that the majority of those suffering from extreme poverty are to be found among the world's rural populations – precisely those who, as food producers, should be benefiting from rising prices – just as three quarters of all those living with chronic hunger are from smallholder farming communities, landless rural families or communities dependent on herding, fishing or forest resources. In a global food regime that has increasingly favoured the spread of industrial agriculture over sustainable local farming, those who live off the land have been rendered most vulnerable. As food commodities fetch record prices on global markets, those growing the food are denied even the basic minimum to eat. 4 Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 2296-2297). Pluto Press. Kindle Edition.

Globalization leads to a massive land grab that threatens the poor

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

Nowhere is the drive for capitalist expansion seen more clearly than in the rush to dispossess farming communities of their land for use in the corporate production of food, agrofuels and agro-industrial crops, or simply for speculation. As many commentators have emphasised, the expropriation of land from the peasantry is a recurrent historical phenomenon, with the term ‘land grabbing’ already found in Marx's account of the displacement of rural labour through which large-scale agriculture was first introduced into England. 29 In the present context, capital's accelerated appetite for land acquisition reflects the relative scarcity of other asset classes in which it can be so profitably invested, together with the recognition that commodity prices are likely to remain high into the long-term future, as the rising demand for food is exacerbated by the challenges of climate change, water scarcity and the steady loss of millions of hectares of cultivated land to soil degradation and urbanisation each year. While estimates vary as to the total number of deals done, at least 83 million hectares of land in the global South have been acquired in transnational agricultural investments (not including mining, forestry or tourism) since the year 2000.30 Very often it is the most fertile land that is appropriated by investors, who are typically granted long leases or concessions lasting for anything up to 99 years. Foreign investors have targeted agricultural land in as many as 84 countries across the world, with a significant bias towards African states such as Sudan, Mozambique, Tanzania, Ethiopia, Madagascar, Zambia and the Democratic Republic of Congo (listed in order of total land area covered in reported deals). In Asia, investors have particularly focused their attention on the Philippines, Indonesia, Lao PDR and Cambodia, which alone has seen concessions covering two million hectares (over 10 per cent of the country's total land mass) granted to agro-industrial businesses, including several from China and Vietnam. 31 Brazil and Argentina are the two countries that have been most closely targeted in Latin America, while European capital has also pursued large-scale land acquisition in Russia, Ukraine and Kazakhstan. Even if the phenomenon of land grabbing is familiar from history, there is no doubting the scale of its current ambition. The precise interest in land acquisition differs between investors. The rush to agrofuels has been responsible for around a third of all large-scale land grabs recorded during the first ten years of the twenty-first century, with private companies registered in the UK and Netherlands particularly active in land acquisition for the production of jatropha, the agrofuel crop behind three quarters of all non-food land grabs. Apocalyptic projections suggest that plantations of jatropha and other agrofuel crops could expand to encompass 20 per cent of all arable land by 2050 – a development whose destructive impact would be ‘unprecedented in contemporary capitalism’. 32 Other deals have involved foreign agribusiness firms taking over farmland to produce staples such as rice, maize and wheat; non-food cash crops such as cotton (especially prevalent among land acquisitions in Ethiopia, for example); or so-called ‘flex crops’ such as soya bean, sugar cane and oil palm, which can be used for a range of food and non-food purposes. Others have seen investors establish agro-industrial plantations to produce high-value crops such as rubber, while others again have acquired land for tree plantations, or to log existing forests. Private equity funds, pension funds and sovereign wealth funds have invested substantial sums in agricultural land with a view to long-term financial returns, while hedge funds have engaged with an eye to more aggressive speculation. 33 Yet the common thread binding together all these forms of capital investment is the neocolonial drive to accumulate by means of the dispossession of those currently living off the land. Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 2458-2459). Pluto Press. Kindle Edition.

Land appropriation is violent and causes forced eviction

John Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card

The violence with which land is expropriated for capital without the free, prior and informed consent of the people living on it can often involve the forced eviction and displacement of whole communities. In Cambodia, dozens of rural and indigenous communities have been forcibly evicted to make way for new agribusiness projects, with over 400,000 people affected in the past decade. 36 In Colombia, farmers of the Afro-Colombian, indigenous and mestizo communities have been forced from their lands in terror attacks by right-wing paramilitary groups linked to agribusiness, in order to establish oil palm, banana and agrofuels plantations on their territories. 37 Similar mass evictions to make way for agricultural land grabs have been reported in recent years from Uganda, Honduras, Guatemala and many other countries, in addition to the vast number of instances where farmland has been expropriated for the extractive industries or other investments. 38 Around a third of the total land surface covered in reported deals is in forested areas, raising further concern as to the ecological damage that could arise if those forests are logged or otherwise destroyed to expand plantation agriculture. Olivier De Schutter, UN Special Rapporteur on the Right to Food, has argued that states have a duty to protect communities already living on the land, and to prioritise ‘development models that do not lead to evictions, disruptive shifts in land rights and increased land concentration’. According to De Schutter, agricultural deals that imply a significant shift in land rights ‘should represent the last and least desirable option, acceptable only if no other investment model can achieve a similar contribution to local development and improve the livelihoods within the local communities concerned.’ 39 Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 2482-2483). Pluto Press. Kindle Edition

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