Globalisation and poverty

Abstract

This essay surveys the evidence on the linkages between globalizationand poverty. I focus on two measures of globalization: trade andinternational capital flows. Past researchers have argued that globaleconomic integration should help the poor since poor countries havea comparative advantage in producing goods that use unskilled labor.The first conclusion of this essay is that such a simple interpretationof general equilibrium trade models is likely to be misleading. Second,the evidence suggests that the poor are more likely to share in thegains from globalization when there are complementary policies inplace. Such complementary policies include investments in human capitaland infrastructure, as well as policies to promote credit and technicalassistance to farmers, and policies to promote macroeconomic stability.Third, trade and foreign investment reforms have produced benefitsfor the poor in exporting sectors and sectors that receive foreigninvestment. Fourth, financial crises are very costly to the poor.Finally, the collected evidence suggests that globalization producesboth winners and losers among the poor. The fact that some poor individualsare made worse off by trade or financial integration underscoresthe need for carefully targeted safety net.