Overarching Concerns Programme Paper 5: Methodological and Data Challenges to Identifying the Impacts of Globalization and Liberalization on Inequality
11 Nov 2005
Globalization (the increasing degree of economic interaction among countries) and liberalization (reductions in government intervention in markets) are defining features of the current era. The author reviews the evidence on how the two trends have affected inequality (and hence poverty) at the world level and within countries. He concludes that nearly all of the strong policy recommendations of the last couple of decades have been based on analyses that were at worst weak and at best needful of considerable refinement.
Berry writes that since around 1980, which roughly corresponds to the new era of globalization and to a wave of liberalization, some conclusions on inequality and poverty trends seem more or less secure. First, this period, and especially the 1990s, has been characterized by a within-country tendency toward increasing inequality of income distribution among persons. Second, in spite of that intracountry pattern, the world distribution of income among persons has been relatively stable (as is true for the last half-century, in fact), and probably declining slightly. Third, since average income growth for the poorest deciles of the world distribution was substantial, poverty levels have continued to decline, though the improvement of this variable was small in the 1990s when a low poverty line (for example, $500 in 1985 US dollars, or less) is used. The surprising fact that world inequality has fallen, even with a general tendency for intracountry inequality to rise, is explained by the strong growth of the world’s two most populous low-income nations, China and India. Excluding these two countries, there has been a marked increase in inequality worldwide and no poverty reduction. Other worrisome aspects of the recent record are that the 1990s were less good than the 1980s, and growth continued to be slow in sub-Saharan Africa, increasingly the locus of the world’s poor people.
Indeed, he writes, if G&L have in fact contributed significantly to declining world poverty over the last couple of decades, the only likely route through which they will have done so would be a positive impact on growth in China and India, a matter which requires detailed analysis of the experiences of those two countries.
Future impacts of G&L could thus be either more or less positive than past ones. Berry concedes that the “convergence” often postulated as an effect of globalization might eventually occur. But he raises two current causes for doubt about its early arrival: the poor performance of sub-Saharan Africa, and the frequent observation (especially in Latin America) that globalization has widened the technology and productivity gaps between those operating in world markets and everyone else, without raising the employment share of the former.
Albert Berry is Professor of Economics at the University of Toronto, Canada.
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