MUHMMAD ASIM
Abstract. This review analyses four transmission mechanisms through which globalization impacts poverty alleviation. Specifically it accesses the impact of globalization on poverty via trade openness, technology transfers, institutional and ecological patterns and global shocks. The literature reviewed challenges the commonly heard criticisms for and against globalization by investigating relatively unexplored areas within these mechanisms. The highlights of the findings are as follows: Trade openness is found to create both gainers and losers among the poor. Higher international technological transfers can reduce poverty but risk loosing ecological resilience which can adversely affect the agricultural sector and the poor. There is no conclusive evidence of significant risk to poor from global shocks relative to local shocks. These findings point to the need of combining globalization experience with redistributive policies, improvements in human capital and institutional adjustments if the experience is to be more pro-poor.
1. INTRODUCTION
Globalization has generated a global debate over its usefulness especially its impact on developing countries and the poverty within these countries. The debate is valuable not because it seeks to identify whether globalization is beneficial or harmful to poverty alleviation but because it identifies several ways in which globalization impacts the bottom quintile of world’s population. The insights thus gained can serve as a powerful tool to identify policies that can make the globalization experience and the gains there from more pro-poor.
The aim of this review is to identify some of the channels through which globalization impacts poverty, both favorably and adversely. Specifically, the next section reviews the works of Ravallion (2006), Aggarwal (2006), Graff et al. (2006) and Ligon (2006). They focus on the impact of globalization on poverty via the trade openness, openness-technology-institutions-ecology, technology transfers and vulnerability channels. Section three highlights the contributions of the papers and offers a critical appraisal. Section four concludes.
2. OVERVIEW OF THE PAPERS
2.1 Ravallion (2006)-Trade Openness Channel
Ravallion (2006) examines the relationship between trade openness and poverty through both macro and micro empirical lenses. His first macro lens employs aggregate cross-country regressions and argues that they fail to establish any causal impact of trade volume on poverty mainly because of omitted variable biases. His second macro lens undertake a time series analysis of China which was chosen because it experienced both a massive expansion in trade volume and a dramatic fall in poverty during the early 1980s. Ravallion (2006) again argues that the evidence does not suggest that trade reform has been an important factor in reducing poverty as the relationship is not robust to additional controls and suffers from problems like endogeniety of trade volume in the regression. Rather, Ravallion points out to a range of non-trade factors that appear to have played a more important role in explaining China’s success against absolute poverty. For instance, he shows that the bulk of the poverty reduction in China occurred during the phase of agricultural de-collectivization and increases in food prices procurement rather than in subsequent trade-opening phase.
However, Ravallion (2006) finds that under a set of specific conditions, trade opening could clearly be very effective in alleviating poverty. This motivated the micro lens analysis. Specifically, Ravallion (2006) used a Computable General Equilibrium Model to investigate the impact on households of WTO accession in China and cereal de-protection in Morocco. The micro studies indicate a considerable heterogeneity in the welfare impacts of trade openness, with both gainers and losers among the poor. For both countries, rural families, especially those engaged in agriculture and having relatively few workers and with weak economic links to the outside economy through migration, tend to loose; urban households tend to gain. Ravallion concludes that these covariates of the individual gains can be exploited in designing compensatory policies and that the trade reforms should be accompanied with well-designed social protection policies.
2.2 Aggarwal (2006) - Openness-Technology-Institutions Channel for Ecosystems
Aggarwal (2006) examines the interactive effects of openness, technology transfers and institutions on the resilience of the local ecosystems, on which the poor depend for their livelihood. She argues that trade liberalization policies in developing countries often leads to specialization in the production of a narrow range of natural resource based activities. The resulting loss of bio-diversity reduces the number of pathways through which stress in the environment can be absorbed, thus reducing the resilience of the ecosystem Aggarwal (2006). Also, international transferS of technology lead to a shift towards more modern resource management practices that have very short term time horizons (Aggarwal, 2006); firms and even farmers expect quick results and pay-offs. Aggarwal argues that the short term production goals cause the institutions to be more rigid and less responsive to environmental feedbacks unlike their traditional orientation. These changes such as , mono-cropping , carried out over vast tracts of land, also lead to a loss of resilience by reducing functional diversity and increasing spatial uniformity in grassland ecosystems. The loss of resilience, in turn, makes the primary producers, especially the poor, more vulnerable to price volatility and shocks such as draughts. The author concludes by suggesting that the governance structure of the institutions should be re-designed such that they overlap the scale of ecosystems that often transcend political boundaries. This could potentially reduce the negative effects of globalization on the environment and the local poor.
2.3 Graff et al. (2006) - Technology Channel
Graff et al. (2006) focus on the technology channel. While Aggarwal (2006) focused on the harmful effects of technology transfers, Graff et al. (2006) argue that North-South biotechnology transfers can dramatically raise food productivity and rural incomes in developing countries. Furthermore, they point out that the policies that aim to facilitate the transfers, however, need to adapt to the fact that fruits of technology diffusion depends on the absorption capacities of the developing countries, particularly their institutional and financial capacities, as well as on the level of human development. Given an appropriate institutional setting, the acquired biotechnology can reduce poverty by raising agricultural productivity for poor farmers and by reducing the food prices for landless farm workers and the urban poor. The authors stress the need to establish institutions with local capacity for technology innovation and adaptation and an ability to reduce transaction costs of technology diffusion and provide standardization, transparency and access to information for property rights. Specifically, the authors describe International Property Rights Clearing House (IRPCH), a new kind of institution intended to be potentially capable of overcoming the lack of access to intellectual property rights.
2.4 Ligon (2006) - Vulnerability Channel
Ligon (2006) focuses on vulnerability channel whereby globalization can increase uncertainty from variation in income and expenditure caused by global shocks. The authors expect that risk averse poor households are particularly likely to suffer from greater volatility in their income streams from international shocks. They undertake a cross-country panel analysis to distinguish the impact of global shocks, country-specific shocks and globalization shocks on poor quintile consumption growth. It points out that the global and globalization shocks are of minor importance relative to country-specific shocks. The authors interpret this evidence with a caveat due to incompleteness of data.
3. ANALYSIS
The papers in this review challenge the widely heard generalizations from both sides of the globalization debate. More importantly, they identify different transmission channels through which globalization impacts poverty and explain relatively unexplored areas within these channels. From the insights thus gained, they offer practical policy prescriptions for developing countries to orient their globalization experience towards poverty reduction.
Ravallion’s (2006) work can, firstly, be seen as a powerful critique of macro-econometric framework employed to research the impact of globalization on poverty reduction. He points out various biases in such an analysis including the endogeniety problem and omitted variable biases. Secondly, his micro lens analysis of China and Morocco that identify gainers and losers among the poor due to globalization reveal important insights, especially for designing compensatory policies. Particularly, his finding from China that at early stages of development, agriculture sector has a far greater impact on poverty reduction than the secondary and tertiary sectors is a valuable lesson (Thorbecke & Nissanke, 2006). Although, his findings are true for the countries he has chosen, they may not hold for other developing countries. He, nevertheless, contributes a simulation technique for analysis that can be readily applied to other countries as well.
Aggarwal’s (2006) analysis is novel to the globalization debate. She links globalization to the environment through a focus on renewable resources while most of the earlier research had focused on industrial pollutants (Aggarwal, 2006). Within this she has attempted to analyze the interaction between ecological systems and human systems while the earlier research focused on a single resource in isolation (Aggarwal, 2006). The linkages she has identified, however, need to be developed more completely and tested empirically. The outcomes cautions the policy makers that openness and technological spillovers in the agriculture sector may reduce the resilience of the ecosystems and thus adversely affect the poor, hence pointing to a need to establish ecosystem-protecting institutions.
While Aggarwal (2006) stressed on the harmful aspects of international technological spillovers on rural poverty, Graff et al. (2006) insists on speeding up biotechnological spillovers to reduce poverty. Unlike Aggarwal (2006) she argues that the evidence on the impact of biotechnology on reducing biodiversity is mixed and depends on the instruments of intellectual property rights. Her major contribution is that she has identified ways to raise technology transfers. Her idea of IRPCH to raise the transfers and reduce the harmful effects on the environment is compelling but it is a long term agenda while the issues raised by Aggarwal need more immediate attention.
Lastly, Legion identified yet another channel through which globalization could impact on the poor, that is, making them more vulnerable to external shocks. They point that although global shocks are relatively unimportant relative to domestic shocks, the results must be taken with caution due to incomplete data. They, nevertheless, point to an important channel and draft a way of analyzing its impact which can be utilized once better data is available over time.
4. CONCLUSION
Overall, the analysis in this review analyses four channels through which globalization impacts poverty. Based on the relevant literature, it points to the inadequacy of macro analysis of the impact of trade openness on poverty and finds that globalization creates both gainers and losers among the poor, thus stressing the need for appropriate redistribution policies. It also points out that while openness and international technology spillovers to the agriculture sector can reduce poverty, there is a need for institutional set up that ensures both more technology transfers and that the transfers do not harm the environment, particularly the resilience of the ecosystem that is tied to rural poverty. Finally, it mentions that there is no conclusive evidence on weather globalization raises the vulnerability of poor to world-wide shocks.
References
Agarwal, Rimjhim M. (2006). Globalization, Local Ecosystems, and the Rural Poor. World Development. 34(8), 1405 – 1418.
Graff, G., Roland-Holst and D. Zilberman (2006).Agricultural biotechnology and poverty reduction in low-income countries. World Development, 34(8), 1430 – 1445.
Ligon, E. (2006). Poverty and the welfare costs of risk associated with globalization
World Development, 34(8), 1446 – 1457.
Thorbecke, E., and M. Nissanke (2006). Introduction: The Impact of Globalization on the World’s Poor. World Development. 34(8), 1333 – 1337.
Ravallion, M. (2006). Looking Beyond Averages in the Trade and Poverty Debate. World Development. 34(8), 1374-1392.
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