The Impact of Globalization on Poverty Reduction
1. Introduction
The globalization of economies has changed the dynamics of the world and has had some far reaching consequences in the twenty first century. This paper will provide a review of the literature on globalization and its effect on economies. In particular, it will focus on the impact of globalization on poverty reduction and job creation. It will also discuss the need for policy measures to humanize the openness of markets.
2. Body
a. Theoretical Review
i. Globalization
Globalization is the process by which economies become increasingly integrated with one another. It is a process that has been underway for many centuries, but which has accelerated dramatically in recent decades. The driving force behind globalization is the increasing international flow of goods, services, finance, and people (Friedman, 1999).
There are a number of different ways in which economists have conceptualized globalization. One common approach is to think of it as consisting of four main aspects: economic, political, social, and cultural (Dicken, 1998).
The economic dimension of globalization refers to the increasing integration of national economies into the global economy. This is manifested in a number of ways, including the growth of international trade and investment, the increasing importance of transnational corporations, and the increasing role of international organizations such as the World Trade Organization (WTO) and the International Monetary Fund (IMF).
The political dimension of globalization refers to the increasing number of transnational issues that are being addressed by supranational institutions such as the European Union (EU) and the United Nations (UN). It also refers to the growing trend towards regionalism, as evidenced by regional trade agreements such as the North American Free Trade Agreement (NAFTA) and the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA).
The social dimension of globalization refers to the increasing cultural diversity that is being generated by increased international travel and communication, as well as by increased immigration. It also refers to the growing trend towards cosmopolitanism, whereby people increasingly see themselves as citizens of the world rather than just citizens of their nation-state.
The cultural dimension of globalization refers to the increasing homogenization of cultures around the world. This is manifest in a number of ways, including the spread of popular culture through global media networks such as television and the internet, and the increasing use of English as a global lingua franca.
In recent years, there has been a growing debate about whether or not globalization is a positive or negative phenomena. On one side of this debate are those who argue that globalization is primarily a positive force that is leading to increased economic growth and prosperity around the world. On the other side are those who argue that globalization is having negative impacts on many different aspects of social life, including democratic institutions, environmental resources, and cultural diversity (Habermas, 2006).
ii. Open Economy
An open economy is an economy in which there are free flows of goods, services, capital, and labor between different countries. The term open economy is often used interchangeably with global economy or world economy. An open economy contrasts with a closed economy, which is an economy in which there are restrictions on international trade and investment.
Most economists would argue that an open economy is fundamentally a good thing. They would argue that, in general, the free flow of goods, services, capital, and labor leads to increased economic efficiency and growth. They would also argue that an open economy provides opportunities for people to specialize in the production of goods and services in which they have a comparative advantage, and that this leads to increased prosperity for all.
However, there are also a number of potential downside risks associated with an open economy. One such risk is that an open economy makes a country more vulnerable to economic shocks that originate in other countries. For example, if there is a recession in the United States, this is likely to have a negative impact on the Canadian economy, even if the Canadian economy is doing well. Another risk is that an open economy can lead to a race to the bottom in terms of environmental and social standards, as companies attempt to relocate to places where environmental and social regulations are weaker.
iii. Poverty Reduction
Poverty reduction is a process by which people are able to lift themselves out of poverty. It is often used interchangeably with the term development, although there is some debate about whether or not the two concepts are identical. Poverty reduction can be measured in absolute terms or in relative terms. Absolute poverty reduction occurs when the number of people living in poverty decreases. Relative poverty reduction occurs when the proportion of people living in poverty decreases.
Most economists would argue that globalization has been associated with both absolute and relative poverty reduction around the world. They would point to the fact that global poverty rates have declined significantly over the past few decades, and that this is largely due to increased economic growth in developing countries (Ravallion, 2010).
There are a number of different mechanisms through which globalization can lead to poverty reduction. One such mechanism is through job creation. Globalization has led to the growth of multinational corporations, which has in turn led to increased demand for labor in developing countries. This has created jobs and increased incomes for people living in these countries, which has led to reduced poverty levels. Another mechanism through which globalization can lead to poverty reduction is through the spread of technology and know-how from developed countries to developing countries. This has led to increases in productivity and efficiency, which have also helped to reduce poverty levels.
3. Empirical Review
The empirical evidence on the effect of globalization on poverty reduction is somewhat mixed. A number of studies have found that globalization has been associated with absolute poverty reduction (Dollar & Kraay, 2002; Ravallion, 2010). However, other studies have found that globalization has had little or no effect on absolute poverty levels (Ranis & Stewart, 2000; Milanovic, 2002).
The evidence on the effect of globalization on relative poverty reduction is also mixed. Some studies have found that globalization has been associated with increased inequality and thus increased relative poverty levels (Milanovic, 2002; Kakwani & Pernia, 2000). However, other studies have found that globalization has been associated with decreased inequality and thus decreased relative poverty levels (Dollar & Kraay, 2002; De Gregorio & Lee, 2001).
4. Conclusion
Globalization has changed the dynamics of the world and has had some far reaching consequences in the twenty first century. The evidence on the impact of globalization on poverty reduction is mixed. However, most economists would agree that globalization has been