The Impact of Globalization on the Poor in Latin America

Abstract

"The Impact of Globalization on the Poor in Latin America" by Thorbecke and Nissanke, studies the impact of trade openness on income distribution and poverty. The paper starts by describing the transmission mechanisms discussed in the literature, and it then estimates the impact of trade openness on several Latin American countries. The last part of the paper studies eight cases in detail. The evidence presented in the paper indicates that institutions such as social protection, labor market flexibility, trade liberalization, and property rights are crucial in reducing the vulnerability of the poor. The authors find that the experience in Latin America between 1981 and 2004 is gloomy. First, the region grew at a very low rate, and trade openness contributed very little to that already small rate. Second, the growth experienced in the region was not progressive: it brought higher income inequality to the region rather than less. Surprisingly, however, Brazil, Chile, and Mexico were the best-performing countries--surprisingly because Brazil and Chile have among the worst income distributions of the world and experienced the worst deterioration in the 1970s and 1980s. Although the picture presented in the paper is not an optimistic one, two important issues arise from the analysis. First, countries in the region have undertaken several steps toward creating a better safety net, which will make future growth more beneficial to the poor. It is therefore possible that the recent growth in the region might have alleviated poverty tin a way that it did not in previous episodes. Second, from a political economy perspective, the Latin American societies were clearly exhausted by the reforms in the 1980s and 1990s. This fatigue may be the outcome of a growth process that was either truly unfair or perceived as unfair. The paper does not pretend to address these issues, but its findings certainly open the door to the question of what the channels of exhaustion are.