Wednesday, October 2, 2002

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Globalization benefits the poor... but there's a caveat

This is kind of a good news, bad news sort of post. The libertarian in me thinks this is great news; the scholar in me is a touch more skeptical.

The good news: A new book by Surjit S. Bhalla to be published by the Institute for International Economics presents clear evidence that globalization has drastically reduced poverty. The money graf:

World poverty fell from 44 percent of the global population in 1980 to 13 percent in 2000, its fastest decline in history. Global income inequality has dropped over this period and is at its lowest level since at least 1910. Poor countries have grown about twice as fast as rich countries (3.1 percent annually versus 1.6 percent) during the era of globalization in 1980-2000, reversing the pattern of the prior two decades. The poor in poor countries have grown even faster; each 10 percent increase in incomes of the nonpoor has been associated with an 18 percent increase in incomes of the poor. There has been strong convergence in world incomes over the entire postwar period and the developing countries' share of the world's middle class has risen from 20 percent in 1960 to 70 percent in 2000.

This backs up other evidence by Xavier Sala-i-Martin that Virginia Postrel has highlighted. It's the best refutation of the sort of idiocy that Arundhati Roy likes to peddle.

The bad news is that this does not really test the argument that anti-globalization advocates make, which is that pro-globalization policies lead to greater inequality. To properly test this argument, the proper "unit of analysis" is at the policymaking level, not the individual level. What's driving the good results is the massive reduction of poverty in only two states -- China and India. And while these countries clearly adopted more globalization-friendly policies over the past two decades, Dani Rodrik and others are correct in pointing out that neither of them is the IMF poster-state for laissez-faire development policies.

So are the anti-globalization folks right? I don't think so, because their results have even bigger flaws, which I'll get to in a later post. The key thing to realize for now is that the claims of rising global inequality are bogus.

posted by Dan on 10.02.02 at 10:45 PM