Shan 1

Ryan Shan
Professor Gayle
English 0812
April 12th, 2015
Globalizations Impact on Poverty: Worse or better off?
Nowadays, we are living in a world strongly connected by the
globalization effect-defined as the process through which goods and
services, capital, people, information and ideas flow across borders and lead
to greater integration of economies and societies. And it has made
substantial advances in recent decades and is viewed by many as an
inescapable feature of the world today (Agenor 2002). With the help of
globalization, we are able to buy goods made by any countries and enjoy
service from all over the world. Moreover, we can even be educated by
people from other countries through the Internet. However, little concern has
been shown on globalizations impact on poverty, whether it improves poor
populations life or not. Recent research has suggested that globalization has
lowered the income gap and reduced the absolute poor population within
countries of globalizers. Chen and Ravallion (2001) estimated that the
number of extreme poor declined by 120 million in the post-1980 globalizers
during the relatively short period between 1993 and 1998; in the rest of the
developing world the number of poor increased by 20 million. It means that
poor people in those countries participate in the globalization process

Shan 2
actually better off, they are getting benefit by the help of globalization.
However, scholars like Robert Hunter Wade argues that world poverty and
inequality have been rising, not failing, due to forces unleashed by the same
globalization, and furthermore, the figures given by the World Bank contain a
large margin of error (Wade 2004).
Poverty has not been reduced by the globalization and the data given
by institutions contain a large margin of error. Statistics shows that the
worlds poverty has been improved by the globalization wave started around
1980 and actually promoted economic equality (Dollar & Kraay 2002) and
over the past 20 years the number of people living on less than $1 a day has
fallen by 200 million, after rising steadily for 200 years (James Wolfensohn
2002). However, Wade argues that there are several reasons to expect a
large margin of error. First, the poverty headcount is very sensitive to the
precise level of the international poverty lines, which means in most
developing countries, a given percentage change in the line would bring a
larger change in the number of people below it, for example, a 10% increase
in the line would increase 20% in the poverty headcount. Second, the
poverty headcount is very sensitive to the reliability of household surveys of
income and expenditure. There are no standard template to follow and
sometimes the survey design itself contains error. Third, China and India
have PPP-adjusted income figures that contain a big component of guess
work, which has significant influence for the overall trend (Wade 2004).
These error bias the results downward, making the situation rosier than it

Shan 3
really is. If the number of people in extreme poverty is not failing and if
global inequality is widening, we cannot conclude that globalization in the
context the dollar- Wall Street regime is moving the world in the right
direction (Wade 2004).
The poor are not sharing the gains from globalization when there are
not enough complementary policies in place in those developing countries.
The studies on India and Colombia suggests that globalization is more likely
to benefit the poor if trade reforms are implemented in conjunction with
reducing impediments to labor mobility (Harrison 2006). However, most
developing countries are still not advanced enough to form a complementary
system which can actually help poor by trading with those foreign developed
countries, who has advanced system and little interest in greater equality.
Without enough protection provided by local government, the poor in those
developing countries will lose most profit when trading with foreign countries
in this global climate. In Zambia, poor farmers are only expected to benefit
from greater access to export markets if they also have access to credit,
technical know-how, and other complementary inputs. In Mexico, if poor corn
farmers had not received income support from the government, their real
incomes would have been halved during the 1990s (Harrison 2006). So it is
significant for those poor countries to develop a completed system as a
shelter for poor people in their country, otherwise, exposing to the global
market will only make them suffer more.

Shan 4
Globalization, which means opening a countrys markets to foreign
firms, tends to reduce the market power of domestic firms and increase
competitive pressures on them, eventually forcing them out of business
(Agenor 2002). In other words, if a developing country open its market to the
world and firms from developed countries move in, local firms will be
threaten by high quality products produced by well-developed firms with
cheap labor force in these poor countries. They have no advantages in
completing with those foreign firms and finally it widen the income gap
between poor and developed countries and both unemployment and poverty
may increase. It could be also seen as imperialism when companies with
absolute advantage move to poor countries. Take China as an example,
nowadays people in China nearly all driving foreign brand cars, which makes
local car company super hard to develop and find their share in the car
market. Thus, workers in vehicle companies in foreign countries are having a
much higher salary than those work for local companies in China and
widening the income gap between them.
Trade liberalization may also lead to higher poverty by reducing the
demand for unskilled labor and worsening income distribution (Agenor 2002).
Since poor countries are lagging behind technologically, there are not
enough skilled labor force to work for those high-tech companies, thus, it will
make it harder for unskilled workers to find a well-paid job or even some of
them will be leave unemployed. As Agenor suggested, in a number of
countries, openness to trade during the 1980s and 1990s has coincided with

Shan 5
an increase in the demand of, and the return to, skilled labor relative to
unskilled labor, and a worsening of income distribution (Agenor 2002). What
is more, in imperfect credit markets, the widening income gap would make it
harder for unskilled workers to pledge collateral and borrow to finance the
acquisition of skills and become skilled workers, so that they can escape
from poverty.
The poor in developing countries with an abundance of unskilled labor
do not always gain from trade reform (Harrison 2006). Taking Nike sweatshop
as an example, workers in those factories are earning a low wage and
working more than 12 hours a day without any welfare and back up, no
further training and subsidies. But the managers of those factories are
making most benefit of the revenue. For those unskilled workers in poor
countries, it seems like a good choice to go to those foreign at least they can
have a job, and it will not be better if they work for local companies. Thus, as
the managers from foreign countries in those companies are making more
and more profit, the income gap is also widening. In the long run, poor
countries and people there will only become worse off because their
economic will be largely rely on those foreign companies and controlled by
them. They would have less power and poor social welfare if they cannot
develop local companies. Sadly, actually they cannot do anything to change
this situation since the product produced by companies from developed
countries have higher quality than local product do and with the similar price
due to the low labor cost. Global market competition in general rewards

Shan 6
people with initiative, skills, information and entrepreneurship in all
countries, poor people everywhere are handicapped by their lack of access
to capital and opportunities to learn new skills (Bardhan 2006). This situation
put poor people into a poverty trap and thus poor stays poor and rich gets
wealthier.
All in all, this paper globalization is not make poor people in developing
countries better off as most people believe, on the contrary, is making them
worse off by forcing them to compete with developed countries in their own
countries. With all the evidence this paper has provided, it is highly
suggested that more researches should be done to learn about the link
between globalization and poverty. Relying on trade or foreign investment
alone is not enough. The poor need better education, access to
infrastructure, access to credit for investing in technology improvements,
and the ability to relocate out of contracting sectors into expanding ones in
order to take advantage of trade reforms (Harrison 2006). In the future, the
globalizations effect on the whole world will only become more and more
significant, and thus further researches still needed to be done and keep
tracking on its influence on poor to improve their live and make the world a
more equal place for us to live.

Shan 7
References
Harrison, Ann. Globalization and Poverty National Bureau of Economic
Research, June 2006.
Wade, Robert. Is Globalization Reducing Poverty and Inequality? London
School of Economics and Political Science, UK, 2004.
Agenor, Pierre-Richard. Does Globalization Hurt the Poor? The World Bank,
September 9, 2002.
Chen, Shaohua, and Martin Ravallion. How did the worlds poorest fare in
the 1990s.
Mimeo. Development Research Group, The World Bank, May 2001.
Dollar, D., & Kraay, A. Spreading the wealth. Foreign Affairs
(January/February 2002), 120133.
World Bank. Global economic prospects and the developing countries 2002:
making trade work for the worlds poor. Washington, DC: The World
Bank, 2002.
Bardhan, Pranab. Does Globalization Help or Hurt the Worlds Poor?
Scientific American, April 2006.

Shan 8