Is Globalisation Causing World
Poverty?
Martin Wolf, Chief Economics
Commentator, Financial Times
Leverhulme Globalisation Lecture
Nottingham University, February 25, 2002
Is globalisation causing world poverty?
1 The charge sheet
2 The current state of world inequality and poverty
3 How the world became this way
4 Inequality and poverty in the 1980s and 1990s
5. Globalisation - winners and losers
6. Conclusion
2
1. The charge sheet
• “Globalization has dramatically increased inequality
between and within nations” Jay Mazur, “Labor’s New
Internationalism”, Foreign Affairs, January/February
2000.
• “So far, the current wave of globalization, which started
around 1980, has actually promoted economic equality
and reduced poverty.” David Dollar and Aart Kraay,
Foreign Affairs, January/February 2002
• Who is right?
3
2. Current state of world inequality and poverty
• This is indeed a remarkably unequal world:
– The rich countries with less than a sixth of world population
generate 55 per cent of world real income
– Low income countries, with 41 per cent of world population,
generate 11 per cent of world incomes
– The average real incomes of the top sixth are 14 times bigger
than those of the 41 per cent in the poorest countries
– Average incomes in the US (the richest country) are 75 times
greater than those of Sierra Leone (the poorest)
4
2. How the world’s population is divided
The
world’s
population
in 2000
was
6,055m, of
which only
903m lived
in highincome
countries
and
4,505m
lived in
lowincome
and lowermiddle
income
countries.
5
SHARES IN WORLD POPULATION IN 2000 (millions)
903
647
2,459
2,046
Low income
Lower middle income
Upper middle income
High income
2. How the world’s income is divided
But the highincome countries
generated 55 per
cent of the total
world income, at
purchasing
power parity, of
$45 trillion
SHARES IN WORLD GROSS INCOME 2000
($ billions, at purchasing power parity)
$4,892
$9,374
$24,781
$5,930
Low income
6
Lower middle income
Upper middle income
High income
2. What this means for world average incomes
The
globalised
world is, as
a result,
deeply
divided in
its living
standards
RICHER AND POORER
(Gross National Income per head, 2000, at purchasing power parity)
$7,428
World
High income
$27,443
Upper middle income
$9,165
$4,582
Lower middle income
$1,989
Low income
Source: World Bank
7
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2. Income inequality among countries is starker
Sierra Leone’s
real income
per head today
is roughly
where the
world’s was in
1500. It is at
the subsistence
minimum and
ravaged by
civil war. The
US is the most
productive
country today.
FROM RICHEST TO POOREST
(Gross National Income per head at PPP, 2000)
US
$34,260
UK
$23,550
South Korea
$17,340
Poland
$9,030
Brazil
$7,320
China
$3,940
India
$2,390
Bangladesh
$1,650
Nigeria
$790
Sierra Leone
$460
$0
8
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2. 1.2bn people on less than a dollar a day
The extremely
poor are defined as
those on less than
a dollar a day, at
purchasing power
parity. There were
1.2bn in 1998,
concentrated in
south and east Asia
and in Africa.
NUMBERS LIVING ON LESS THAN A DOLLAR A DAY, 1998
(millions of people, at purchasing power parity)
278
291
78
24
30
6
522
South Asia
Latin America and Caribbean
9
Sub-Saharan Africa
Europe and Central Asia
East Asia and Pacific
Middle East and North Africa
2. Highest incidence in Africa and South Asia
Almost half
the
population of
Sub-Saharan
Africa is
destitute. The
incidence of
extreme
poverty is
almost as
high as this
in South
Asia, though
falling.
SHARES OF PEOPLE LIVING ON LESS THAN A DOLLAR A DAY, 1998
(at PPP)
World population
Developing country population
Middle East and North Africa
Europe and Central Asia
24.0%
1.9%
5.1%
East Asia and Pacific
15.3%
Latin America and Caribbean
15.6%
South Asia
Sub-Saharan Africa
Source: World Bank
10
20.2%
0.0%
40.0%
46.3%
5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%
3. How the world became this way
• The path to world inequality has been a long one
– Today’s unequal world did not arrive in 1980. It has been
emerging progressively over 200 years
– The big divergence today is between countries that have
sustained growth in incomes per head over long periods and
those that have grown more slowly and unevenly
– Relative economic growth has been the principal determinant
of long-term changes in global inequality and poverty
11
3. How the world became this way
– The rise in global inequality was fastest in the 19th century. It
seems to have ended in the 1980s and 1990s, though
absolute income gaps keep growing
– Numbers in poverty also peaked in the 1980s, but the
proportion of the world’s population in extreme poverty has
been falling for 200 years
– The world’s poorest are those left behind by growth
12
3. “Small” differences add up over time….
13
THE MIRACLE OF COMPOUND INTEREST:
ANNUAL RATES OF GROWTH IN REAL INCOMES PER HEAD, 1820-1998
2.50%
2.00%
1.91%
1.75%
1.67%
1.51%
1.50%
1.22%
1.21%
1.06%
1.00%
0.95%
0.92%
0.67%
0.50%
D
ev
el
op
or
ld
W
s
in
g
C
co
d
ou
nt
rie
un
tri
es
ric
a
Af
va
nc
e
Ad
ia
As
e
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ro
p
er
ic
a
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er
n
Am
e
La
tin
Eu
ro
p
te
rn
es
W
es
te
rn
of
fs
ho
o
Ja
pa
n
ts
0.00%
W
There has
been growth
almost
everywhere,
but rates of
growth have
differed
substantially
over the last
180 years.
This is not
surprising.
Opportunities
are never
exploited
evenly. Some
get there first.
Source: Angus Maddison
3. And create chasms in cumulative growth
Over 180 years,
small
differences in
growth in
output per head
- that is, in
productivity
growth become huge
chasms in living
standards.
UNEVEN GROWTH:
RATIO OF GDP PER HEAD IN 1998 TO GDP PER HEAD IN 1820
35.0
30.5
30.0
25.0
21.8
19.0
20.0
14.5
15.0
8.7
10.0
8.6
6.5
5.4
5.1
5.0
3.3
0.0
n
pa
a
J
W
14
t
es
n
er
of
f
oo
sh
ts
W
es
t
n
er
e
op
r
Eu
La
ti n
ic
er
m
A
a
Ea
st
n
er
e
op
r
Eu
i
As
a
ri
Af
ca
ce
an
v
Ad
d
co
tri
un
ev
D
es
g
in
op
l
e
o
C
tri
un
ld
es
W
or
Source: Angus Maddison
3. Similar starting points, different endings
What
steady
growth
has done
for US
GDP per
head
over 180
years.
DIVERGENCE BIG-TIME
(GDP per head at PPP, 1990 dollars)
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1820
Source: Angus Maddison
15
1870
US
1913
Japan
China
1950
India
Africa
1973
Latin America
1998
3. How relative growth rates have changed
Slopes
indicate
growth rates.
Note Japan’s
remarkable
catch up in
the 1950-73
period and
China’s in the
latest period.
US growth
has been
fairly steady.
A TALE OF THREE COUNTRIES:
DIVERGENCE AND CONVERGENCE IN THE LONG RUN, 1820-1998 (GDP
per head at PPP, 1990 dollars)
$100,000
$10,000
$1,000
$100
1820
1870
1913
US
16
1950
Japan
China
1973
1998
3. Yawning chasm between richest and poorest
While the
frontier
countries have
grown richer,
some
countries have
remained at a
subsistence
minimum. So
ratios of
income per
head have
become
steadily
wider.
RATIO OF GDP PER HEAD IN FRONTIER COUNTRY TO THAT IN
SUBSISTENCE MINIMUM COUNTRY - 1500-1998
70.0
Note: subsistence minimum country taken at $450 per head
60.7
60.0
50.0
USA
40.0
37.1
30.0
21.2
20.0
Italy
Netherlands
11.8
10.0
0.0
3.0
2.4
1500
1600
Source: Angus Maddison
17
Britain
4.7
1700
4.7
1820
7.1
1870
1913
1950
1973
1998
3. This has created global household inequality
Global
household
inequality
increased
fastest in the
19th century
and peaked
in 1970. The
big reason
for the
declining
inequality
was fast
growth in
east Asia
and, more
recently, in
India.
18
WORLDWIDE INCOME INEQUALITY, 1820-1995
(Mean deviation between a typical individual and average income per head,
as per cent of average income per head)
100.0%
88.1%
90.0%
81.4%
77.5%
80.0%
66.8%
70.0%
77.7%
69.0%
61.0%
60.0%
50.0%
54.4%
48.5%
42.2%
40.0%
30.0%
20.0%
10.0%
0.0%
1820
1850
1870
1890
Source: Dollar and Kray, Foreign Affairs, January/February 2002
1910
1930
1950
1970
1990
1995
3. Numbers of people on less than a dollar a day
1,400
Poverty has dropped by 200 million
over past 20 years, despite the
world’s population increase of 1.6bn.
1,200
1,000
800
19
1820
1840
1860
1880
1900
1920
1940
1960
1980
2000
3. But declining proportions of people in poverty
Extreme
poverty has
been in
decline as a
share of
world
population
since 1850.
It has fallen
fastest in the
last half
century. It
fell from 31
per cent of
the world’s
population in
1980 to 20
per cent in
1998.
20
PROPORTION OF PEOPLE LIVING ON A DOLLAR A DAY IN WORLD
POPULATION, 1820-1998
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8
82 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 199
1
Source: World Bank and US Bureau of the Census
4. Poverty and inequality in the 1980s and 1990s
• The record of the 1980s and 1990s on inequality and
poverty has been quite encouraging:
– At the world level, household inequality has declined, as
growing between-country equality has more than offset
growing within-country inequality
– The number of absolute poor has fallen a little, while the
proportion of the poor in world population has fallen
substantially
– There have been particularly big declines in numbers in
poverty in East Asia
21
4. Declining inequality among rich countries
Inequality
has risen
within
rich
countries,
but fallen
among
them
Figure 18.
Household inequality within rich countries
Mean log deviation
0.4
Between countries
Within countries
0.3
0.2
0.1
0
22
1960 1965 1970 1975 1980 1985 1990 1995
Source: David Dollar, “Globalization: Who wins, who loses and what
the world can do about it”, July 17, 2001, World Bank
4. Plus oscillations in the developing world
Inequality
has risen
slightly
within
developing
countries
since 1985
and first
fallen then
risen
among
them
Figure 20.
Household inequality in the developing world
Mean log deviation
Between countries
Within countries
0.6
0.4
0.2
0.0
1960
23
1965
1970
1975
1980
1985
1990
1995
Source: David Dollar, “Globalization: Who wins, who loses and what the world can
do about it”, July 17, 2001, World Bank
4. Create modest declines for the world
If one adds the
Figure 17.
two together, one
Worldwide household inequality, 1960-1999
finds that
worldwide
Between countries
Mean log deviation
household
Within countries
inequality has
80%
been falling, not
rising in the last
60%
two decades.
Falling inequality
between countries
40%
(largely because
of growth by
20%
China and India)
has offset modest
0%
increases in
1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99
inequality inside
them.
Source: David Dollar, “Globalization: Who wins, who loses and what the world
24
can do about it”, July 17, 2001, World Bank
4. And proportion of the absolute poor has fallen
Since 1987, the
number of people
on one dollar a day
has oscillated, but
the proportion in
the world’s
population has
fallen
NUMBER OF PEOPLE ON LESS THAN A DOLLAR A DAY AND PROPORTION OF
WORLD POPULATION (millions and per cent)
1,320
25.0%
1,300
1,280
24.2%
24.0%
23.6%
23.6%
23.0%
1,260
1,304
1,240
1,276
22.0%
1,220
21.0%
1,200
20.6%
20.2%
1,180
20.0%
1,160
1,191
1,183
1,199
19.0%
1,140
1,120
18.0%
1987
1990
Total
25
1993
1996
Proportion of world population
1998
4. The regional incidence of poverty, 1987-1998
The decline in
poverty has been
fastest where
growth was fastest in east Asia
NUMBER OF PEOPLE ON LESS THAN $1 A DAY
(at purchasing power parity)
1,400
1,200
1,000
74
71
242
273
64
76
78
289
291
265
278
217
800
452
432
418
600
400
200
474
495
505
532
522
1987
1990
1993
1996
1998
0
South Asia
Latin America and Caribbean
26
East Asia and Pacific
Middle East and North Africa
Sub-Saharan Africa
Europe and Central Asia
5. Globalisation, the winners and losers
• Globalisation affects these trends largely through its
impact on country growth:
– The world’s markets for goods and services are now more
integrated than ever before. The same is not so true for capital
and, above all, labour
– Countries have varied dramatically in their ability to take
advantage of these opportunities
– Developing countries with combined populations of 2.4bn
have done well. This group includes China and India.
– Globalisers have liberalised more and their trade has also
grown more than non-globalisers
27
5. Globalisation - winners and losers
– Fast growth in globalising developing countries has benefited
the poor in those countries and also reduced global inequality
– Trade has, as always, been the handmaiden of growth. But
rapid growth requires much more than economic integration.
28
5. The world is now more integrated than ever
Measured by trade
and foreign assets,
the world economy
is now more
integrated than ever.
Falling costs of
transport and
communications and
liberalisation have
been the driving
force. Movement of
people is far less
than in the late 19th
century.
29
Table 1.
Measures of global integration
Capital flows
Trade flows
Foreign
assets/world
GDP (in percent)
Trade/GDP
(in percent)
Transport and communications costs (constant US $)
Sea freight
Air transport
(average ocean freight (average revenue per Telephone call Computer
and port charges per ton) passenger mile) ( 3min NY/London)
(index 1990=100)
1820
2a
1870
6.9
10a
1890
12b
1900
18.6
1914
17.5
18ab
1920
95
1930
8.4
18a
60
0.68
1940
63
0.46
1945
4.9
1950
14a
34
0.3
1960
6.4
16b
27
0.24
1970
22.4a-20b
27
0.16
1980
17.7
24
0.1
1990
26ab
29
0.11
1995
56.8
Source Crafts (2000) a.Maddison (1995) UNDP (1999) UNDP (1999)
b.Crafts (2000)
245
189
53
46
32
5
3
UNDP (1999)
12500
1947
362
100
UNDP (1999)
Source: David Dollar, “Globalization: Who wins, who loses and what the world
can do about it”, July 17, 2001, World Bank
5. The winners and losers
More globalised (24) Less globalised (49)
Population 1997 (billions)
2.9
1.1
GDP per head 1980
$1,488
$1,947
GDP per head 1997
$2,485
$2,133
rule of law index
-0.04
-0.48
Source World Bank
30
5. The winners and losers in trade policy
The winners
have liberalised
trade by more
than the losers.
Figure 7.
Decline in average import tariffs:
mid-1980s to late-1990s
34 points
11 points
Non-globalizers
31
Globalizers
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. The winners and losers in trade
The winners have
also increased
their trade in
relation to GDP,
while the losers
have seen their
trade shrink.
Figure 5.
Change in trade/GDP, 1977-97
(selected countries)
China
Mexico
Argentina
Philippines
Malaysia
Bangladesh
Thailand
India
Brazil
Pakistan
Kenya
Togo
Honduras
Senegal
Nigeria
Egypt
Zambia
-1
32
0
Log difference
1
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. The winners and losers in trade again
The difference in
trade performance is
stark at the
aggregate level.
Figure 6.
Increase in trade/GDP: 1970s to 1990s
104%
100%
75%
71%
50%
25%
0%
-18%
Non-globalizers
33
Rich countries
Globalizers
Source: David Dollar, “Globalization: Who wins, who loses and what the world can
do about it”, July 17, 2001, World Bank
5. Trade does not harm the poor
Figure 12..
Increased trade has no correlation with
changes in inequality
15
10
Change in Gini coefficient
And rises in trade
ratios have not
increased
inequality. So if
trade raises
growth, it also
normally helps the
poor.
5
-0.4
-0.2
0.2
0.4
-5
-10
-15
Change in trade to GDP
34
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do about
it”, July 17, 2001, World Bank
5. Winners in trade are also winners in growth
These globalisers
have indeed grown
faster and faster.
Figure 8.
6%
Per capita GDP growth rates:
post-1980 globalizers
5.0%
4%
3.5%
2.9%
2%
1.4%
0%
1960s
35
1970s
1980s
1990s
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. But losers in trade are losers in growth
The non-globalisers
have performed
poorly
Figure 10. Per capita GDP growth rates:
non-globalizers
4%
3.3%
2.4%
2%
1.4%
0.8%
0%
1960s
36
1970s
1980s
1990s
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. And fast growth benefits the poor
The poor tend to share
in economic growth,
which is why the
poorest people live in
the poorest countries
Figure 11.
Growth is good for the poor
Average annual change in log
(per capita income in poorest quintile)
0.2
0.1
-0.1
0.1
Average annual change
in log (per capita income)
-0.1
y = 1.185x - 0.0068
R2 = 0.4935
-0.2
37
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. This is true everywhere
Where growth
has been very
fast, so has been
the pace of
poverty
reduction
GDP GROWTH AND POVERTY REDUCTION
(1992-98, per cent a year)
15.0%
10.0%
5.0%
9.9%
6.4%
3.8%
4.4%
-5.9%
-7.1%
-7.5%
-8.4%
India
Vietnam
China
0.0%
-5.0%
-10.0%
Uganda
Data for India are for 1993-99
38
Growth rate of GDP per head
Rate of poverty reduction
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do
about it”, July 17, 2001, World Bank
5. Better off people keep children from work
And richer people
keep children from
work.
Figure 15. Child labor and household
consumption levels in Vietnam
Share of 6-15 year olds working
40%
1993
30%
20%
6.54
1998
6.64
6.74
6.84
6.94
7.04
7.14
7.24
7.34
7.44
7.54
Per capita household consumption 1993 (log scale)
39
Source: David Dollar, “Globalization: Who wins, who loses and what the world can do about
it”, July 17, 2001, World Bank
5. Trade as the handmaiden of growth
• “As far as we can tell, there are no anti-global victories
to report for the postwar Third World. We infer that this
is because freer trade stimulates growth in Third World
economies today.” Peter Lindert and John Williamson
• This conclusion is consistent with the weight of
evidence. But multi-collinearity between trade and
other policies makes it difficult to demonstrate the
causal connection
• Contrast North and South Korea or West and East
Germany
40
6. Conclusion
• Globalisation is not guilty of causing growing poverty
and inequality worldwide
• Overall, there has been declining inequality and
poverty in the age of globalisation. This breaks a trend
that goes back almost two centuries
• But far too many countries have become less
globalised and grown poorly.
• This is the only sense in which globalisation causes
inequality: some seize opportunities and others do not
• The challenge is to help the failures do better
41