Ann Harrison of Berkeley has a new working paper on Globalization and Poverty (NBER, #12347, June 2006). This is an introduction to a book she's editing. Working versions of the chapters are here: Globalization and Poverty . The papers were delivered at a conference in 2004.
Harrison's authors find that increases in exports, and foreign direct investment, are associated with reductions in poverty. On the other hand, lower trade barriers can create problems for the poor in import-competing sectors ("inflexible labor laws" that interfere with movement from "contracting" sectors can make problems worse) and financial crises hurt as well).
To focus on one topic, the ability of the poor to move from declining import-competing sectors to other sectors that are expanding is important. Labor laws and human capital investments can be important here:
...poor workers need to be able to move out of contracting sectors and into expanding ones. The country studies on India and Colombia suggest that trade reforms have been associated with an increase in poverty only in regions with inflexible labor laws. Consequently, reaching any conclusions without taking into account the labor market institutions that could undermine labor mobility may be misleading. More research is needed to identify whether labor legislation protects only the rights of the small fraction of workers who typicallyaccount for the formal sector in developing economies, or whether such legislation softens short term adjustment costs and helps the labor force share in the gains from globalization....
...it is also possible to identify the losers from globalization among the poor. Poor workers in import competing sectors - who may not be able to relocate due to the existence of inflexible labor laws - are likely to be hurt by globalization...
...there are losers among the poor from trade reform. In particular, this volume identifies as losers the poor in import competing sectors following the liberalization of trade. The heterogeneity in outcomes suggests that careful targeting is necessary to address the poor who are likely to be hurt by globalization. This includes the poor in countries hit by financial crises, as well as the smallest farmers who cannot compete with the more efficient larger farmers or with expanding import competition. Mexico’s transfer programs played a major role in preventing the smallest corn farmers from experiencing a large decline in income following reforms. In Indonesia, subsidized food was distributed to many communities. Scholarships andfree public schooling introduced a year after the Indonesian crisis led to subsequent increases in school enrollments, particularly among the poorest. Extending such subsidies to health care visits and basic drugs might have arrested the decline in the use of health care which occurred after the 1997 crisis.
...the evidence suggests that relying on trade or foreign investment alone is not enough. A critical role for complementary policies is highlighted in the country studies on Zambia, India, Colombia, Indonesia and Poland. 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...
policies that complement liberalization are important:
...the evidence suggests that the poor are more likely to share in the gains from globalization when there are complementary policies in place. Such complementary policies include investments in human capital and infrastructure, as well as policies to promote credit and technical assistance to farmers, and policies to promote macroeconomic stability.
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