Lecture 17

In Defense of Globalization

Art of the Argument

Who Can you Answer and Why

Who are the Critics?

` Hard Core Critics

Concerns;

Anti-Capitalist,

Anti-American

Anti-Corporation

Common Ground Critics

Concerns:

Poverty, Child Labour

Gender equality, environment

Conditionality

Foreign Direct Investment

Fallacies of Aggregation

Free Trade in Goods and Services Differ from Free Capital Flows without monitoring

North South Debate

1). Anti Globalization greatest in North

2. Pro-Globalization greatest in South

Poverty Enhanced or Diminished?

Issue: Does increased trade and FDI reduce Poverty?

Theory: Two step argument;

1. Trade enhances economic growth

2. And growth reduces poverty

Trade is not a “trickle down” phenomenon but a pulling up phenomena

Some Growth Better Than Others:

1.  Immiserization: Want to avoid flooding market

2.  Labour intensive and Export growth is good

Policy Matters: Consolidate Gains from Growth so Poor Get access to Growth to Avoid Kuznet’s inequality Trap

1.  Micro Credit Policies: Small sums to poor people

2.  Collateralize Peasant Debt

a.  Use property Rights for collateral

3.  Peasant Political Power:

a.  Via NGO’s and Political Parties

b.  Important Poverty reducing initiatives

i. No Polygamy

ii.  Prohibit Dowry

iii.  Mandates Public School for Girls

Empirical Argument: Trade and Development

1.  Size of Import Duties and pace of economic growth positive 1875-1914

2.  Modern Evidence: Import Substitution and Growth is overwhelming

3.  Why are outward looking trade policies good?

a.  Scale economies

b.  Gains from increased competition

i. Break up local monopolies:

1.  Toyota vs. Indian Ambassador cars

4.  Compare Tigers to India from 1960’s to 1980’s

a.  Tigers had high rates of FDI

b.  India prohibited FDI

5.  Globalizers Since 1970’s increase in exports is associated with greater growth and vice-versa.

Conclusion: Reversal in roles of Africa and Asia 1970-2000

1.  1970 11% of world’s poor in Africa-74% in Asia

2.  2000: Africa 66% of poor and Asian 15%

Incidence of Poverty and Globalization

Area / Demographic / 1981 / 1984 / 1987 / 1990 / 1993 / 1996 / 1999 / 2002 / Percentage Change 1981-2002
East Asia and Pacific / Less than $1 a day / 57.7% / 38.9% / 28.0% / 29.6% / 24.9% / 16.6% / 15.7% / 11.1% / -80.76%
Less than $2 a day / 84.8% / 76.6% / 67.7% / 69.9% / 64.8% / 53.3% / 50.3% / 40.7% / -52.00%
Latin America / Less than $1 a day / 9.7% / 11.8% / 10.9% / 11.3% / 11.3% / 10.7% / 10.5% / 8.9% / -8.25%
Less than $2 a day / 29.6% / 30.4% / 27.8% / 28.4% / 29.5% / 24.1% / 25.1% / 23.4% / -29.94%
Sub-Saharan Africa / Less than $1 a day / 41.6% / 46.3% / 46.8% / 44.6% / 44.0% / 45.6% / 45.7% / 44.0% / +5.77%
Less than $2 a day / 73.3% / 76.1% / 76.1% / 75.0% / 74.6% / 75.1% / 76.1% / 74.9% / +2.18%

Other Summary Measures

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