Globalization and Inequality in CIS Countries

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Globalization and Inequality in CIS Countries

• Vugar Bayramov, Centre for Economic and Social
  Development (CESD), Azerbaijan

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Commonwealth Independent States (CIS)
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Contents

• Theoretical Approaches on correlation between
  globalization and inequality in CIS countries
• Empirical research on impacts of globalization
  process on inequality in CIS countries

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Last Changes in CIS

• Dramatic rise in inequality in CIS
• Absolute poverty widespread in CIS
• Highest risk of poverty faced by
• children
• rural households
• excluded groups (e.g. Roma, refugees)
• Working households largest share of poor
• Non-income poverty growing
• Growing gap between CIS and CEE
• Collapse in living standards

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Literature

• Two strands of literature
• Studying the effect of globalization on growth
  and inequality
• Which factors as the result of globalization
  affect on growth and inequality.
• Literature focuses on CIS economy insist that
• Globalization is to lead to an increase in income
  inequality between skilled and unskilled labor
  (Aghion, 2002)
• Changes in inequality vary greatly across
  countries which have stepped up their integration
  into the world economy (Dollar and Kraay,2001)

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Two Opposite Approaches

• Globalization has dramatically increased
  inequality between and within nations (Mazur,
  2000), and in particular that it has marginalized
  the poor in transition countries and left behind
  the poorest countries.
• Globalization reduces inequality between nations
  (Hecksher-Ohlin Model)

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Problems in H.Ohlin Model in Case of CIS Countries

• There are at least two empirical problems with
  the Heckscher Ohlin model. First, it predicts
  that bilateral trade will be greatest when factor
  endowments are most different (Vanek, 1968).
  There is little trade between advanced countries
  such as the U.S. and very poor transition
  countries such as Tajikstan. A second problem
  with the Heckscher Ohlin model is that evidence
  from examination of specific developing countries
  following trade liberalization and from
  cross-country studies does not suggest that trade
  liberalization
• generally reduces inequality in transition
  countries and in fact frequently suggests that
  trade liberalization can increase inequality.

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GDP Per Capita and Inequality in Context of
Globalization Process

• Survey covers transition economy as well indicate
  that globalization increases equality in
  low-income countries, such as Tajikistan and
  Moldova and decrease inequality in developed
  countries (Milanovich, 2001). Turning point is
  around 6 000 GDP per capita.

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Variation in within-country income inequality
Source OECD and Authors Calculations
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Gini coefficient in CIS countries
Source UNDP and Authors Calculations
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GDP Growth and Inequality Rate in the selected
CIS countries
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Openness and Inequality

• Researches indicate that after WTO Accession
  Inequality has been Increased in Kyrgyzstan,
  Moldova, Georgia and Armenia. All WTO members in
  CIS apply very low tariffs, for example, average
  tariff rate is 4.3 in Georgia, 9.1 in Russia,
  14.3 Belarus. Other research indicate that leas
  open countries has low inequality (Kray, 2003)
  such as Belarus.

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Key message from Globalization Process in CIS
countries

• The key message is that so-called market
  forces cannot guarantee the equitable
  distribution of benefits and convergence. Not
  only does government intervention at the domestic
  level have a role, but so do mechanisms at the
  regional level. These interventions stem from the
  theory underlying market failure, positive
  externalities, and the provision of public goods.

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Conclusion

• Theories support globalization decrease
  inequality in CIS counties have major problems to
  be empirically approved
• High inequality is observed in more liberalized
  countries, such as Georgia and Moldova
• WTO Accession increase inequality in CIS
  countries such as Kyrgyz Republic and Armenia
• Poor institutions in CIS countries increase
  negative impacts of globalization on inequality
  in CIS countries
• Trade integration associated with higher growth,
  growth associated with poverty reduction, but no
  evidence of significant link between trade and
  poverty in CIS countries
• Trade and financial integration associated with
  rising inequality, higher consumption volatility
  in transition countries
• Financial crises hurt the poor and increase
  inequality in CIS countries

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Thank You

• Center for Economic and Social Development
  (CESD)
• Address
• Shirin Mirzeyev 76 "a"/ 33,
• Baku Az1002,
• Azerbaijan
• Phone [phone]
• Fax [phone]
• Email cesd_at_aztelekom.net
• Web http//www.cesd.az