An Analysis on the Impact of globalization on Poverty Reduction-1

Research Proposal
“<strong>An</strong> <strong>An</strong>alysis on the Impact of Globalization and Poverty
Reduction”
Ngov Penghuy
April 20, 2011
1. Research Interest:
This study seeks to answer the fundamental question on the relationship and
mechanism through which globalization impacts on poverty reduction in developing
countries.
2. Problem Statement:
The term globalization is generally defined as the movement of goods (trade
liberalization), movement of capital (financial liberalization/integration), and
movement of people (migration). However, the characteristics and speed of
globalization is considered different among the three. While the speed of goods and
capital movement saw a handsome progress in the past decades, movement of
people still lags behind. In this study, by limiting globalization to the trade
liberalization and financial integration, its impact on poverty reduction is
examined.
Moreover, this study also aims to investigate the structural reasons that cause
poverty in certain group of countries. This is because countries of different income
(governance structure, religion, ethnic, etc.) groups may face different challenges to
overcome poverty.
3. Literature Review
According to Goldberg and Pavnick (2004), the literature on trade and inequality is
voluminous. However, there is almost no work to date on the relationship between
trade liberalization and poverty. Harrison (2006) argues that past researchers who
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advocate global economic integration should help the poor since poor countries have
a comparative advantage in producing goods that use unskilled labor, is misleading.
She continues to emphasize that the poor are more likely to share the gains from
globalization when there are complementary policies in place, such as investments
in human capital, infrastructure, credit and technical assistance to farmers, and
macroeconomic stabilization policies. At the same time, the winners and losers
among the poor in developing countries also emerge depending on the sectors in
which they are engaged. The winners are likely to be those, as a result of trade and
foreign investment reforms, in exporting sectors and sectors that receive FDI
(foreign direct investment). On the contrary, for those in import-competing sectors
are likely to be hurt by the globalization.
4. Research Methodology
There are several ways of measuring globalization and poverty. Different
measurement leads to different outcome. If globalization is measured by the degree
of the openness of trade, then trade volumes and measures of trade policy are
common. According to Harrison (2006), most researchers prefer the use of direct
trade policy measures such as tariffs or quota vis-à-vis to trade volumes, typically
measured as shares to GDP. Trade shares are not ideal because they are
determined by trade policies, geography, country size, and macro economic policies.
The concept of poverty is also diverse. One of the commonly used indicators for
international comparison is poverty incident by the United Nations (UN), defined as
the share of people who lives below the poverty line, 1 USD per day. In 2008, this
poverty line was revised by the World Bank to 1.25 USD at 2005 purchasing-power
parity. Poverty measured by this poverty gap is called economic poverty. Although
economic poverty is the most frequently used, it is also considered as the end result
of poverty, which is actually affected by other factors including social and political
ones. In this study, the author broadens the concept of poverty to three aspects: 1)
Economic Poverty, 2) Social Poverty, and 3) Political Poverty. Economic poverty
refers to those who make their living below the poverty line. Social poverty refers to
those who are situated below a certain level of formal education, social exclusion
group, and life expectancy. Political poverty refers to the group of people that lacks
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(or is sufficient of) freedom of speech, freedom of media, and freedom to elect their
leader in a free and fair electoral process.
After having properly set the definition of globalization and poverty, cross-country
analysis, panel analysis, and dynamic panel analysis will be carried out to
investigate the impacts of globalization on poverty. However, the relationship
between globalization and poverty reduction may not be direct. This can be
indirectly affected through the growth-effect and distributional effect channels.
The data set to be used in the analysis must cover a wide range of countries and be
suitable for cross-country comparison. Potential sources of data include WDI (World
Development Indicator), HDI (Human Development Indicator), FH (Freedom
House), MDG (Millennium Development Goal), etc.
References:
Goldberg, Penny and Nina Pavnick (2004), ”Trade, Inequality, and Poverty: What
Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing
Countries”, NBER Working Paper No. 10593.
Harrison, <strong>An</strong>n (2006), “Globalization and Poverty”, NBER Working Paper No.
12347.
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