Globalisation leads to faster growth and poverty reduction in poor countries.
That is the central conclusion of new research by David Dollar and Aart
Kraay of the World Bank, published in the February issue of the Economic
Journal.
These researchers have examined the impact of trade liberalisation on the
growth performance of countries and on the distribution of income within
countries. Their analysis divides a sample of 73 developing countries into
post-1980 ‘globalisers’ and ‘non-globalisers’. Since China, India and several
other large countries are part of the former group, well over half of the
population of the developing world lives in these globalising economies.
The research reveals a marked difference in performance between the two
groups of countries:
· The post-1980 globalisers have seen large increases in trade, and
significant declines in tariffs over the past 20 years. Their growth rates
have accelerated from the 1970s to the 1980s to the 1990s, even as
growth in the rich countries and the rest of the developing world has
declined.
· The globalisers grew at an average of 5% a year in the 1990s,
compared with income growth per head of only 1.4% per annum in the
non-globalisers and far higher than growth rates of rich countries. The
globalisers are catching up with the rich countries while the rest of the
developing world is falling farther behind.
· Moreover, on average the income of the poorest 20% of the population
in the globalising countries increased at the same rate as the
economies as a whole, so that absolute poverty in the globalising
developing countries fell sharply in the last 20 years.
Clearly some of the main beneficiaries of globalisation are developing
countries. Nevertheless, a common claim of the anti-globalisation movement
is that foreign trade and investment are leading to higher inequality within
countries so that the poor do not benefit from the process of faster growth. So
the researchers have also examined the effects of trade on inequality and
poverty.
They find that there is no systematic relationship between changes in trade
volumes (or any other globalisation measure) and changes in the income
share of the poorest, which is a good measure of inequality.
In other words, some globalising countries have had increases in inequality
while others have had decreases. On average, the higher growth rates that
accompany expanded trade lead to proportionate increases in incomes of the
poor.
It is no surprise then that globalising developing countries such as China and
India have had large declines in absolute poverty during the 1980s and
1990s. The evidence from individual cases and from cross-country analysis
supports the view that globalisation leads to faster growth and poverty
reduction in poor countries.
ENDS
Notes for Editors: ‘Trade, Growth and Poverty’ by David Dollar and Aart
Kraay is published in the February 2004 issue of the Economic Journal.
The authors are in the Development Research Group at the World Bank
(http://worldbank.org/research).
The paper is part of a symposium on ‘Trade Liberalisation and Economic
Performance in Developing Countries’ organised by Amelia Santos-Paulino of
the Institute of Development Studies at Sussex University and Tony Thirlwall
at the University of Kent.
For Further Information: contact David Dollar on +1-202-473-7458 (email:
DDollar@worldbank.org); or RES Media Consultant Romesh Vaitilingam on
0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).