Globalization and Its Impact on Poverty Reduction

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Globalization and its Impact on Poverty in Pakistan

Sohail J. Malik Ph.D. Islamabad May 10, 2006

The globalization phenomenon
• Globalization is multidimensional and impacts all aspects of life – economic social, cultural and political.

• globalization in production and labor markets is leading to increasing outsourcing of parts, components, and services • the drive towards market liberalization has rapidly accelerated the pace of globalization during the past decade.

From Globalization to Poverty Reduction ……….
• The whole process is predicated on increased efficiency arising out of the international competition. • Requires the poor to constantly seek to improve their skills and human capital. • Investment in Quality control and standards • This also requires a set of specific interventions by the Government. • Increasing competitiveness is at the heart of the whole process.

This requires……………………
• Competitiveness of the domestic enterprises in the global economy • Reasonably good investment climates in which firms can startup, prosper and grow • Good governance – – – – control of corruption, well functioning bureaucracies and regulation, contract enforcement, protection of property rights .

• Strong forward and backward linkages of markets within a country and globally – e.g. transport and telecommunications infrastructure - not just for a good investment climate but also for including the poor. • Proper ‘management’ of the process of reform including sequencing of reforms

Also requires social safety net policies to catch the marginalized Because • the process by definition produces winners and losers • the inability to protect the losers can not only increase the damage • It can shatter national confidence and lead to a reversal towards protectionism

Competing in the globalized world requires
• new institutions and processes. • a new “culture” of doing business • increasingly sophisticated research requirements in order to stay competitive • Building awareness and consensus • Supportive Policy Environment

• globalization opens up markets and ensures competition • Removes inefficiencies and leading to greater growth. • ensures specialization takes place in areas of comparative advantage. • For labor abundant economies this means increased employment as well as growth.

Growth of the “globalizers” is associated with certain other characteristics These include: • flexibility of the exchange rate regimes and the ability to exercise fiscal discipline • investment in research and adaptation • investment in skill enhancements • the ability to re-adjust economic structures to bring these in line with comparative advantage • Safety nets for those that are inevitably marginalized in the short run by this process.

Globalization has led to
• A reduction in the number of poor people in certain parts of Asia, but not in other parts of the world. • This lack of uniformity in the poverty reduction impact of globalization is tied to the absence of the “other” characteristics

Three Important findings from international review of globalization • integration - not feasible without a wide range of domestic reforms covering governance, the investment climate, and social service provision and international action, which provided access to foreign markets, technology and aid • Inclusion varies both across countries and within. A number of countries (with around 2 billion people) are in danger of becoming marginal to the world economy over the past two decades. • homogenization popular fears at cultural and social level - despite the fact that societies that are all fully integrated into the global economy differ enormously

International Experience with Globalization
• Examples of Successful integration - Chinese provinces, Indian states, and the countries of Bangladesh and Vietnam. • Looking at the number of poor people rather than average national poverty levels, we find that...
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