Jun 7, 2019 in Research

Does Globalization Causes Poverty

Globalization and poverty are among some of the major issues facing the contemporary world. Globalization denotes the trend towards the increasing interdependence and integration of societies and economies across the globe. Globalization has drawn praise and criticism alike. On the one hand, those advocating for more globalization maintaining that it enhances living standards and helps in reducing poverty through increased employment attributed to cross-border capital flows and trade, expansion of democracy, and exchange of ideas. In this way, pro-globalization advocates assert that globalization offers an opportunity to achieve global development goals and create a more equitable and inclusive international economy (Hassoun, 2011). On the other hand, the anti-globalization campaigners are maintaining that it is detrimental, especially to the poorest countries because of their exclusion from enjoying the benefits associated with globalization. They cite the widening gap between the poor and the rich, the increase in inequality, and mounting debt. Moreover, they argue that globalization has heightened completion for poor countries and individuals (Jaumotte, Lall, & Papageorgiou, 2013). Amidst these conflicting views, this paper adopts a pro-globalization stance and argues that globalization does not cause poverty; instead, it helps in reducing and resolving the problem of poverty through increased flows of trade, capital, people and technologies. Therefore, globalization plays a crucial role in enhancing prosperity as well as global cooperation, which eventually results in poverty reduction, improved equality, and economic growth of national economies.

First, numerous developing nations such as Chile, Brazil, India, China and South Africa have documented substantial economic growth in the past three decades attributed to their participation as well as involvement in the global economy. As a result, there is ample evidence supporting the claim that the economic conditions of developing countries have improved following the onset of globalization (Hassoun, 2011). The underlying observation is that globalization has been instrumental in reducing poverty through accelerating the economic growth of developing countries. Empirical evidence exists to affirm that more open trade and economic policies, indicators of globalization, are linked to economic growth. By contrast, developing countries having inward-oriented economic and trade policies have documented poor economic growth rates. Therefore, globalization stimulates economic growth, which in turn is crucial in reducing poverty (Jaumotte, Lall, & Papageorgiou, 2013). An inference from this observation is that an inverse positive relationship exists between poverty and globalization, that is, an increase in globalization translates to a corresponding decline in poverty. There is widespread agreement in the literature that open economies outperform close economies, which explains the increased acceptance of open-door economic policies by countries that previously used closed policies such as Saudi Arabia and United Arab Emirates (Kaplinsky, 2013). Globalization is poised to accelerate economic growth through a number of channels including technology, people, finance and trade. 

 

Second, the uneven poverty reduction attributed to globalization affirms its role in reducing poverty. Although globalization tends to reduce poverty unevenly, its overall impact on global development cannot be underestimated (Tarabini, 2010). Moreover, the resulting uneven reduction in poverty and inequality can be attributed to the fact that countries differ in terms of embracing globalization. Pro-globalization advocates maintain that countries that embraced globalization such as India and China benefited significantly when compared to countries that were reluctant to embrace economic integration. For instance, export-led (outward-oriented) trade policies played a crucial role in bringing prosperity for the bulk of East Asia region, changing these countries from some of the poorest nations four decades ago to some of the economic powerhouses today (Hassoun, 2011). On the other hand, reluctant countries that stuck with inward-oriented trade policies like import substitution industrialization such as bulk of Africa and Latin American countries during 1960s-1980s documented stagnating or declining economies. Overall, through embracing globalization by participating in global economic interdependence and integration, countries can address the issue of inequality and poverty both between and within countries (Hassoun, 2011). Globalization through free trade contributes to sustainable economic growth, which is pivotal in enhancing the living standards of people across the globe. As a result, globalization increases the economic opportunities available in developing and least developed countries.

Thirdly, besides free trade, technology acts as a primary driver for the process of globalization. Technology, when successfully and appropriately implemented, has the potential of lessening and alleviating poverty altogether (Dunning, 2014). As a result, the technological advances that have been achieved in the developed world provide vast opportunities to increasing the standards of living for those in the developing and least developed world (Blaustein, 2004). Using open trade policies together with the suitable technologies has resulted in considerable benefits for all including increasing the profitability of multinational firms and increasing productive employment as well as incomes for the poor (Dunning, 2014). All these have been achieved through the dissemination of suitable technologies from the developed world into the developing world with the ultimate aim of fostering prosperity, development and growth. A notable example is the emergence of the business process outsourcing industry in India, whereby operations of Western multinational companies are outsourced to India. As of 2012, the outsourcing industry in India had employed 2.8 million people and reported revenues about $ 11 billion (Business Portal of India, n.d.). Therefore, outsourcing in India serves as an ideal case study that shows how globalization via technology integration can help in reducing poverty by providing employment to millions of people. Moreover, Western corporations are relocating their operations in developing countries having the required raw materials and labor supply, which helps to ease unemployment and grow the local economy (Dunning, 2014). Overall, through the cross-border transfer of technology, employment opportunities are created for the poor in the developing world.

Fourth, pro-globalization campaigners also cite the benefits that economic convergence in terms of trade and investment with respect to reducing inequality and poverty. The underlying argument is that higher levels of foreign direct investments and trade, and tariff reductions lead to an increase in economic activities. In this respect, inequality and poverty is lessened through two steps (Dunning, 2014). The first step entails investment and trade resulting in growth, and the second step entails the economic growth reducing poverty levels. Vast empirical evidence exist to affirm that higher levels of openness to investment and trade has been instrumental in accelerating economic growth and reducing poverty in several developing countries, which in turn reduces the overall inequality across the globe. Because of the high volume of global trade, globalization also increases the possibility of allocating resources globally and domestically in a manner that is more efficient since nations can embark on specializing in the production of what they have the most competitive advantage (Jaumotte, Lall, & Papageorgiou, 2013). Moreover, because of globalization, multinationals from developed countries can establish subsidiaries in developing markets, which subsequently enhances local access to technology and capital. Studies have also shown positive linkages existing foreign investment and Gross Domestic Product (GDP) per capita, which can lead a reduction in poverty since the poor can also benefit significantly from the increase in the GDP per capita. In addition, access to advanced technology can also help poor people to access fundamental services like modern public health and medicine. Pro-globalization campaigners emphasize empirical evidence supporting the assertion that alleviating poverty requires countries orient themselves towards integrating into the global economy (Jaumotte, Lall, & Papageorgiou, 2013). Consequently, countries that have been effective to reduce poverty are those that have embraced globalization.

Moreover, the decline in the global poverty statistics following the onset of globalization is an indicator that globalization does not cause poverty, but help in reducing the trend (Jaumotte, Lall, & Papageorgiou, 2013). Statistics show that the incidence of poverty has declined significantly over the past five decades. Figure 1 below shows the declining trends in global poverty rates. For instance, recent estimates show that, as of 2012, 12.7% of the global population lived at or below $ 1.9 per day, which is a significant decline from 37% and 44% documented in 1990 and 1981 respectively. This implies that, as of 2012, 896 million people were living on less than $ 1.9 per day, when compared to 1.95 billion and 1.99 billion in 1990 and 1981 (The World Bank, 2015). Although the decline in poverty remains uneven, this unevenness can be explained by the differential embracing of globalization in the sense that countries that embraced globalization such as China documented a higher decline when compared to those in Latin America, which were reluctant towards globalization.  

Despite the promise of globalization in addressing the issue of poverty, anti-globalization campaigners remain skeptical of this assertion. They argue that globalization causes and increases poverty since poor people have little or no capital to invest in a global market. Moreover, globalization compels societies and economies to adapt to the changes caused by the process of globalization (Hassoun, 2011). The outcome is that some economies will grow relatively faster than others, leading to a widened inequality. However, it is essential for anti-globalization advocates to note that globalization is not blame for the current inequality and poverty. In this respect, they problems facing the world such as poverty are not correlated to globalization; instead, they are caused by national policies and not the global forces (Hassoun, 2011)f. As a result, national governments are solely responsible for perpetuating poverty through the policies that they adopt.

In conclusion, it is evident from the discussion that globalization does not cause poverty; instead, it helps in reducing and alleviating it. Globalization lessens poverty through a number of channels including accelerating economic growth and technology integration that opens opportunities for the poor in developing countries. The declining incidence of poverty provides evidence to assert that an inverse relationship exists between globalization and poverty in the sense that more globalization translates to reduced poverty. Moreover, countries that embraced globalization benefited significantly in terms of reducing poverty when compared to those that were reluctant in embracing globalization. Therefore, it can be argued that globalization does not cause poverty, but instead, helps in reducing it.

 

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