Globalization and Poverty: An NBER Study

This paper surveys the evidence on the linkages between globalization and poverty, drawing on fifteen papers prepared for an NBER forthcoming study directed by Ann Harrison, Globalization and Poverty. We focus on two measures of globalization: trade integration (measured using tariffs or trade flows), and international capital flows. Many economists have used the Heckscher-Ohlin framework in international trade to argue that the unskilled or the poor in countries with a comparative advantage in unskilled labor are most likely to gain from trade reform. The first conclusion of this paper is that such a simple interpretation of general equilibrium trade models is likely to be misleading. Second, 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 programs to promote human capital development, infrastructure development, credit and technical assistance to farmers, and macroeconomic stability. Third, trade and foreign investment reforms have produced benefits for the poor, particularly those in exporting sectors or sectors which receive foreign investment. Fourth, financial crises are very costly to the poor. Finally, the collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration suggests the need for carefully targeted safety nets. We emphasize the heterogeneity of results across different countries and settings, but also present cross-country evidence which suggests that the path from globalization to poverty reduction via the growth effects of trade reforms is likely to be important.