Globalization, Growth and Poverty

1
Globalization, Growth and Poverty

• David Dollar
• World Bank
• June 2006

2
Three waves of globalization
30
10
20
5
10
0
0
3
Measures of global integration
Transport and communications costs (constant US )
Capital flows
Trade flows
Foreign assets/world GDP (in percent)
Sea freight(average ocean freight and port
charges per ton)
Air transport(average revenue per passenger mile)
Telephone call( 3min NY/London)
Trade/GDP(in percent)
1820
-
2a
-
-
-
1870
6.9
10a
-
-
-
1890
-
12b
-
-
-
1900
18.6
-
-
-
-
1914
17.5
18ab
-
-
-
1920
-
-
95
-
-
1930
8.4
18a
60
0.68
245
1940
-
-
63
0.46
189
1945
4.9
-
-
-
-
1950
-
14a
34
0.3
53
1960
6.4
16b
27
0.24
46
1970
-
22.4a-20b
27
0.16
32
1980
17.7
-
24
0.1
5
1990
-
26ab
29
0.11
3
1995
56.8
-
-
-
-
Source
Crafts (2000)
a.Maddison (1995)
UNDP (1999)
UNDP (1999)
UNDP (1999)
b.Crafts (2000)
4
Global growth has shifted to developing countries
Per capita GDP growth rate (percent)
Industrialized economies
4
Developing economies
3
2
1
0
1960s
1970s
1980s
1990s
5
Developing country exportshave shifted toward
manufactures
Percent
80
Manufactures
60
40
Minerals
20
Agriculture
0
1965
1970
1975
1980
1985
1990
1995
6
Change in trade/GDP, 1977-97 (selected
countries)
China
Mexico
Argentina
Philippines
Malaysia
Bangladesh
Thailand
India
Brazil
Pakistan
Kenya
Togo
Honduras
Senegal
Nigeria
Egypt
Zambia
-100
0
100
Percent change
7
Increase in trade/GDP 1970s to 1990s
104
100
75
71
50
25
-18
0
Rest of developing world
Rich countries
Globalizers
8
Growth in globalizers accelerated as integration
proceeded
9
Convergence and divergence in
the 1990s
GDP per capita growth rates, 1990s
6
5
4
2
2
-1
0
Rich countries
Globalizers
Rest of developing world
10
Chinas success to date

• Began reform with good human capital and
  equitable division of land
• Openness to trade and FDI introduced new
  technologies, strengthened incentives
• Sound investment climate for agriculture
  (household responsibility system) and industry
  (FDI, private entry)

11
China began reform with good human capital
12
Chinas success to date

• Began reform with good human capital and
  equitable division of land
• Openness to trade and FDI introduced new
  technologies, strengthened incentives
• Sound investment climate for agriculture
  (household responsibility system) and industry
  (FDI, private entry)

13
Average unweighted tariff rates by region
Percent
1980-85
1986-90
60
1991-95
1996-98
40
20
0
South Asia
Latin America and the Caribbean
East Asia and the Pacific
Sub-Saharan Africa
Middle East and North Africa
Europe and Central Asia
Industrialized economies
Source Martin (2001)
14
Trade Reforms and Trade
VolumesChina 1978 - 2000
Average tariff
Trade/GDP (log)
2
0.5
Average tariff rate (right axis)
1.6
0.4
Trade/GDP(left axis)
1.2
0.3
0.8
0.2
1988 8,000 trading companies
1986 Forex swap market
1984 800 trading companies
0.4
0.1
1979 Open SEZs to FDI, forex retention
1978 Trade monopolized by MOFERT
0
0
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
15
Maritime transport to the U.S. (East Coast)
textiles
Costs as share of value of exports
0.16
0.12
0.08
0.04
0
Mombasa
Bombay
Shanghai
Bangkok
Kao Hsiung
(8,452)
(10,319)
(10,631)
(11,222)
(8,360)
16
Chinas success to date

• Began reform with good human capital and
  equitable division of land
• Openness to trade and FDI introduced new
  technologies, strengthened incentives
• Sound investment climate for agriculture
  (household responsibility system) and industry
  (FDI, private entry)

17
Loss due to power outage
Bangalore
Calcutta
Chengdu
Chennai
Dhaka
Guangzhou
Karachi
Sao Paulo
Shanghai
0
1
2
3
4
5
6
7
Percent of total sales
18
Longest delay to clear import customs
0
5
10
15
20
25
30
35
Days
19
Investment climate bottlenecks
China
Poland
Brazil
Pakistan
Algeria
Uganda
Tanzania
Source World Development Report 2005,
Investment Climate Surveys
20
Poor countries that globalized have seen the
fastest growth in wages
Wage growth between 1980s and 1990s (percent)
30
20
10
0
Rest of developing world
Rich countries
Globalizers
21
Growth is good for the poor
Average annual change in log(per capita income
in poorest quintile)
0.2
0.1
Average annual changein log (per capita income)
-0.1
0.1
-0.1
y 1.185x - 0.0068
R2 0.4935
-0.2
22
Increased trade has no correlation with changes
in inequality
15
10
5
Change in Gini coefficient
-0.4
-0.2
0.2
0.4
-5
-10
-15
Change in trade to GDP
23
Poverty reduction in Pakistan, Bangladesh,
India, Vietnam, and China closely related to
growth
Percent per annum, 1992-98
10
GDP per capita growth rate
9.2
Poverty reduction
8.4
8
7.5
6.4
6
5.4
4.6
4
3.1
2.1
2
1.5
0.5
0
Bangladesh
India
Vietnam
China
Pakistan
24
Extreme Poverty in the World, 1820-2001
Number of people living on less than 1 per day
(millions)
1,500
1,400
1,300
Bourguignon-Morrisson
1,200
Chen-Ravallion
1,100
1,000
900
1820
1840
1860
1880
1900
1920
1940
1960
1980
2000
25
Global household inequality has declined
26
Recent changes in poverty 2001-2004 Changes in
the incidence of poverty

• Poverty incidence has continued to decline in
  recent years

27
Recent changes in poverty 2001-2004 Changes in
the number of poor

• The numbers of poor have also continued to fall
  in recent years

28
Taxonomy of the rural poor (those below the
low-income poverty line) in terms of ten
characteristics (? majority of households have
that characteristic)

• Some problems are common to almost all groups of
  poor e.g., no migrant worker, no TVE worker,
  low education
• Others apply to particular categories of poor
• Group 5 (21) are in remote mountainous minority
  areas
• Group 3 (14) are not in remote mountainous
  minority areas, but have limited land
• Group 1 (17) are hampered by low work capacity
  of adult household members
• Implication Policies need to be differentiated
  according to the type of poverty

29
Child labor and household consumption levels in
Vietnam
Share of 6-15 year olds working
40
1993
30
20
1998
6.54
6.64
6.74
6.84
6.94
7.04
7.14
7.24
7.34
7.44
7.54
Per capita household consumption 1993 (log scale)
30
Globalization and Poverty

• all the main parties support nonstop expansion
  in world trade and services although we all know
  it makes rich people richer and poor people
  poorer
• Walter Schwarz, The Guardian

31
President Fox on Globalization

• We are convinced that globalization is good and
  its good when you do your homework
• keep your fundamentals in line on the economy,
  build up high levels of education, respect rule
  of law when you do your part, we are convinced
  that you get the benefit.

32
Globalization has a bad effect on my country
27
10
9
US/Western Europe
Developing Asia
Sub-Saharan Africa
33
These institutions have a good influence in my
country
Multilateral corporations
WTO, World Bank, IMF
Anti-globalization protestors
75
72
35
66
28
27
54
63
62
US/WesternEurope
DevelopingAsia
Sub-SaharanAfrica
US/WesternEurope
DevelopingAsia
Sub-SaharanAfrica
US/WesternEurope
DevelopingAsia
Sub-SaharanAfrica