issues in development theory

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BRADFORD CENTRE

FOR

INTERNATIONAL DEVELOPMENT

2007/2008

Issues in Development Theory

Greater globalization, rather than less, could promote economic growth

and, as a consequence, poverty reduction in developing countries.

Discuss with reference to a country case study.

UB07014568

By

Aboubaker Suleiman A. BADI

word count: 3,542



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INTRODUCTION

The worldwide extension of inter national tr ade af ter linking the Gener al Agr eement of

Tariff s and Tr ade (GATT) into the World Tr ade Or ganisation (WTO) in 1995 has

produced the world economy. The integr ation of the economies of many countries

was the main r eason for cr eating a new situation in the world which is called

globalisation. It has become one of the most debated issues in this er a, and the

overriding concer n in contempor ar y societies, and attr acting the attention of

gover nments, institutions, r esearcher s and media. In today¶s economic world, as

both developing and developed countries ar e mor e and mor e integr ated into the

process of globalisation, economists ar e natur a lly becoming mor e and mor e

sensitive to this word-³globalisation´, especially when its negative and positive

eff ects on economic growth, as well as pover ty r eduction. In gener al, globalisation

poses a strong impact not only on the worldwide economy but also on individual

state, and both developed and developing countries, especially those poor and third

world countries that have taken oppor tunities as well as risks through globalisation

become sensitive to this process. However , the positive eff ects of globalisation on

economic growth in developing countries may aid to decr ease the level of pover ty as

a r esult of that.

From the per spective of this essay, one key question should be r aised: If

globalisation promotes economic growth, does it r educe pover ty. Thus, this paper , by

analyzing the conceptual fr amewor k of Globalisation, will discuss critically its impact

in Economic Growth and Pover ty. This will also show how globalisation and growth

may lead to r educe pover ty, depending on the Key f acts which help to achieve that

such as equality, education, and health car e.



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The conceptual framework and literature about Globalisation

Befor e talking about the impact of globalisation on economic growth and pover ty, it is

necessar y and impor tant to make a good analysis of the conceptual fr amewor k and

r eview the liter atur e about Globalization. Kiely et. al (1998) point out that

³Globalisation r ef er s to a world in which societies, cultur es, policies and economies

have, in some sense, come closer together .´ (Kiely et. al, 1998, p.3). However , is it

the communications r evolution and super highway tr anspor tation? Or the inter net?. In

other words is it the tr ansf er of intellectual, and scientific knowledge between

people?. Or r ather , is it a blessing or a cur se?. According to H arris (1993)

globalisation is the growing process in the inter national flows of goods, services,

capital, technology and infor mation. While Lodge (1995) has provided an inclusive

definition of globalisation, as the process which makes the world¶s people be come

mor e interr elated in all f acets of their lives economically, politically, cultur ally, and

technologically.

However , a successful control of globalisation will have sever al eff ects, which r eflect

a positive change on economic growth, as seen in a number of countries in East and

South East Asia such as China and Kor ea, and some people with high-skills ar e

consider ed as gr eat beneficiaries of globalisation, while cer tain r egions such as

Africa and those low-skilled and low-educated people ar e victims of globalization .

According to a r ecent study by the World Bank (2002) called ³Globalisation, Growth,

and Pover ty´, which shows that China is the best successful example in r educing

pover ty through the application of globalisation, with over 300 million people lif ted out

of absolute pover ty since 1978. Simultaneously, it has a negative impact as well.

Ther e is no doubt that the loss of control on globalisation may r esult in destruction



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r ather than r efor m; This is a problem that exists in many par ts of Africa (Mittelman

1997). Today, in spite of improving situations, mor e than thr ee quar ter s of countries

have pover ty estimates, and mor e than two thirds have plans for r educing pover ty.

In the context of liter atur e r eview, as f ar as the impact of globalisation on pover ty is

concer ned.The Globalist per spective is based on the hypothesis that economic

globalisation r educes pover ty and countries that have globalised have experienced

f aster economic growth. For globalists such as Kothari et. al (2002) they ar gue that,

³globalisation off er s the potential for living standards to rise with the spr ead of new

technologies as the latter can incr ease productivity levels and alleviate pover ty

problem.´ (Kothari et. al, 2002, p.23). In other words, when the question concer ning

why pover ty decr eases under the age of globalisation is taken into account,

globalists believe that since spr ead of new technologies can advance productivity

level and boost economy, it helps to r aise living standards which consequently

alleviates pover ty problem. Fur ther mor e, globalists also mention that globalisation is

par ticularly beneficial for developing countries, while global pessimists pr esent that

globalisation makes the poor and the mar ginalized become mor e impoverished and

wor se as it r epr esents a new for m of colonia lism.

To sum up, based on diff er ent per spectives of globalisation, the answer to the

question of the impact of globalisation on pover ty in developing countries is diff er ent,

and globalisation is viewed as a complicated concept. That is why Kothari said tha t

³globalisation is a highly contested concept in ter ms of its meaning for m and

implications, with mor e fundamental questions being r aised about the extent to which

globalisation is actually taking place and, if it is occurring, the natur e of it genealogy. ´

(Kothari et. al, 2002, p.17).



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GLOBALISATION AND ECONOMIC GROWTH

The world economy in the past f ew decades became mor e integr ated, while some

states especially the developing countries has purposely r educed the tr ade tariff s

and barrier s, and r emoved the obstacles on the dir ect for eign investment. But does

it wor k to r educe pover ty?.

Globalisation is the process that help to incr ease global economic integr ation

through the tr ansf er of technological improvement and the sophisticated

communications, which make the tr ade connections mor e pr actical. However , a wor k

by Seitz (2002) suggests that global economy has brought mor e affluence to the rich

and poor countries together ; many globalists confir med that globalisation has a

positive impact on growth through fr ee tr ade. A r esearch study by Sachs and War ner

(1995) ar gues that 4.5 per cent a year , is the growth r ate in developing countries that

opened their economies in the period between 1970s and 1980s against just 0.7 per

cent a year for countries with closed economies.

For instance, under the encour agement of the IMF, Kor ea, the Asian mir acle in 1993,

pur sued an expor t based development str ategy that led to its downf all in four year s.

In 1995 the sum of expor ts to impor ts was 56% of its Gross Domestic Product (GDP)

(Adelman and Nak, 2001:89). The eleventh lar gest tr ading economy, Kor ea, suff er ed

the contagion eff ects of the economic r ecession in Japan and Europe. World prices

for Kor ea¶s expor ts products nose-dived in 1996 aff ecting 50% of Kor ea¶s expor ts

and fuelling economic meltdown, low wages and pover ty. (Adelman and Nak, 2001).

According to the World Bank r epor t (2000/01) economic growth improves the living

level of poor people and ever yone else. This par t will highlight a r epor t submitted by

David Dollar and Aar t Kr aay (2000) of the World Bank Development Research



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Group, under the title ³Growth is Good for the Poor ́, which suppor ted the world Bank

and noted that economic growth is able to r educe pover ty. The study included 92 of

the industrialized nations and developing countries as well over the past four

decades. And the r esult of the study says that ³Growth is good for the poor ́ and

ar gues that the curr ent impacts of globalisation ar e in f act good for pover ty r eduction.

The opinion of Dollar and Kr aay i s that the successful macroeconomic policies, for

instance, the stable monetar y policy, openness to inter national tr ade, and the

moder ate size of the gover nment ar e the most eff ective ways to pover ty r eduction.

These types of policies ar e good for the poor in ter ms of r aising incomes and without

any negative eff ects on the income distribution. The study discover ed that these

f actor s benefit the poor as well as the other str ata of the society. The study also

confir med that the r elationship between growth and pover ty has not changed in the

end, and does not var y during crises, and it is gener ally the same ones in both rich

and poor countries. The conclusion of the study gives the explanation showing that

the growth of enhancing policies of good rule of law, fi scal discipline and openness

to inter national tr ade should be at the centr e of any eff ective pover ty r eduction, and

finally, explaining clearly that growth gener ally helps the poor as much as anyone

else in society (Dollar and Kr aay, 2000).

But the WDR (2000/01) found that ther e ar e still diff er ences in pover ty outcomes

between both the developed and the developing countries pointing out the role of

economic growth in pover ty r eduction, which gener ally causes these diff er ences in

pover ty outcomes the countries over the long ter m. But the question her e is what

drives economic growth?.

For advancing economic growth, the policies and institutions of the state must be f air

and under standable for a sustainable economic growth to improve the situation of



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the poor (WDR, 2000/01); besides that, the gover nment must provide good

education and health services. According to a study by Barro (1997) the

experimental r esult for a panel of around 100 countries from the 1960s to 1990

strongly suppor t that growth depends o n education and lif e expectancy, especially at

lower incomes. The World Development Repor t asser ts that the institutional f actor s

ar e also impor tant for economic growth. In addition, a good gover nment and good

gover nance ar e undoubtedly the basic crucial conditions for the development and

growth process, together with a good investment climate as well (Dollar and Kr aay,

2000).

A r ecent study by World Bank in (2002) entitled ³Globalisation, Growth, and Pover ty´

shows that 24 developing countries, with a tot al population of 3 billion, and with mor e

and mor e liber al tr ade policies, ar e incr easingly integr ating into global economy.

Ther efor e, as the WB pointed out in the globalisation r epor t, global integr ation is

alr eady a powerful force for pover ty r eduction. But how can globalisation be good for

the poor . According to a WDR the impact of growth on pover ty depends on equal

distribution of income gener ated by this growth, for giving r ate of economic growth,

pover ty will f all f aster in countries wher e the distribution of income becomes mor e

less equal. A r ecent survey by Appleton et al (1999) for the period between 1992 -

1997 found that ther e has been a dr amatic decline in pover ty in Uganda. Appleton et

al, provide an analysis of the issue of pover ty r eduction in Uganda due to the growth

with rising equality. Reduction in inequality made growth eff ective in r educing pover ty

in Uganda, and pover ty f all as twice as f ast for the countr y as a whole (Appleton et

al, 1999). on the other hand, a study by Wodon (1997) show s that the incr ease in the

propor tion of inequality in Bangladesh temper ed the pover ty r eduction from growth,



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the study shows that the per capita in the GDP has gr ewn at about 2 per cent a year

during 1990s, and that pover ty declined quite slowly, because of rising inequality.

THE GLOBALISATION AND POVERTY REDUCTION

This par t of the essay will critically analyze how the growth in the globalisation er a

benefits the poor , by pr esenting various examples from sever al states wher e the

curr ent growth and globalisation ar e fur ther widening disparities in income, which ar e

described as obstacles to pover ty r eduction.

From the World Bank per spective, ³growth r eally does help the poor ́. It is clear that

the policy of the World Bank is Globalisation, then, is g rowth promoting, and Growth,

in tur n, r educing pover ty (WB, 2002). The WDR 2000/01, ar gues that growth is a

centr al element of pover ty r eduction and all of the r efor ms and measur ement which

ar e r ecommended in the r epor t ar e for growth and liber alization r a ther for poor or

pover ty r eduction ( Oxf am, 2000). For instance, the promotion of education is of ten

tuned to growth and it is seen as an impor tant issue to pr epar e people for the mar ket

potential (Genugten and Bustillo, 2001).

Indeed, for the World Bank:

"poverty eradication is now the menu, but the main dish is still growth and market

liberalisation, with social safety nets added as a side dish, and social capital

scattered over it as a relish´. ( The Nation Bangkok, 20001)

1 Comments on Ravi Kanbur ¶s r esignation from his position as WDR 2000/01 lead author



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According to (Genugten and Bustillo, 2001) the problem is that the growth with the

curr ent mar ket for m is not the way to r emove pover ty because it is also a main

promoter of inequality and pover ty as well.

In addition, the World Bank's model "Growth is good for the poor" does not focus on

whether growth ar e gener ally benefits the poor , and according to a r ecent study by

Weisbrot, Naiman, and Kim (2000) shows that ther e is a decline in the r ate of growth

in the 1990s, compar ed to the r ate of growth in 1960s.

Figur e 1 shows the growth of GDP per capita in diff er ent countries in the developing

world for the period between 1960 -1980, and comparing with GDP per capita growth

for the period between 1980-1998. For example, In Latin America the GDP per

capita gr ew by 75 per cent from 1960-1980, while from 1980-1998 it has only risen 6



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per cent. For Sub- Sahar a Africa, GDP per capita gr ew by 36 per cent in the fir st

period, and af ter that i t has since f allen by 15 per cent.

Even if it wer e true that economic growth r aises the aver age income of the poor as

much as the rich, policy maker s with an inter est in pover ty r eduction should be

concer ned with the shar e of the poor in national wealth. T his is because for any

given level of aver age income, the extent of pover ty will depend on how income is

distributed. In other words, the distribution of any incr ement to growth will deter mine

the r ate at which growth into pover ty r eduction.

The diff er ent experiences in each of the countries in Latin American and East Asia

clarif y the point. Latin America achieved in the period between 1990 -1998 a r eal per

capita economic growth r ates of just under 2 per cent a year . But in spite of this good

economic perfor mance, the number of people who wer e living below the pover ty line

incr eased by 4.4 million, while the r ate of pover ty f ell by just over 1 per cent. By

contr ast, the growth in East Asia have 174 million people out of pover ty, the per

capita income has been rising at 6 per cent yearly. The percentage of growth in Latin

America is 1:0.08 per cent, compar ed to 1:0.03 per cent in East Asia. Ever y

percentage point of growth in East Asia r educes the incidence of pover ty at four

times the r ate achieved in Latin America. These r esults indicate the impor tance of

the income distribution for pover ty r eduction (Watkins, 1998).

Wher eas, Oxf am¶s policy paper (2000) ar gues that the world bank's model is anti

poor because it f ails to addr ess the key question of how to shar e the benefits of

growth mor e equitably. It is anti growth as well because of the high level of inequality

is not just bad for pover ty r eduction, but also for economic efficiency.

The World Bank claims that ³globalisation r educes pover ty bec ause integr ated

economics tends to grow f aster and this growth is usually widely diffused´ (WB,



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2001a, p. 1). yet, the observed f acts suggest that r eductions in pover ty and income

inequality still is f ar too elusive in most par ts of the world (Christian et al, 2002).

The bank as a def ender of the curr ent system of globalisation acknowledges that

inequality has incr eased within countries .

According to Zhang et al (2003) China is r egarded as a big beneficiar y of

globalisation. The link between globalisation and Chinese economic growth and

pover ty r eduction has star ted Since the introduction of the r efor m and opening up in

1979, in this period China has experienced unpr ecedented economic growth.

According to a r ecent study provided by Khan et. al (2001), as compar ed to 5.5 per

cent during the 1970s, the aver age annual r ate of growth of GDP was 10.2 per cent

during the 1980s and 12.8 per cent during the fir st half of the 1990s. Fur ther mor e,

Khan et. al (2001) also pointed out that per capita GDP almost quadrupled over the

same period and people ar e living better and better and gr adually getting rid of

pover ty. No doubt, China¶s r apid economic growth and pover ty r elief ar e gr eatly

caused by its integr ation with the global economy.

To sum up, evidences have proven that China is a typical example showing that

globalisation indeed has two-side natur e. On one hand, (Khan et. al, 2001)

concluded that thanks to its economic r efor ms, globalisation has successfully played

a significant role in China¶s economic development and par t of China¶s population

has achieved positive r esults of per capita income and pover ty r eduction. At the

same time, as f ar as specific r egions and specific group of people ar e concer ned,

owing to adver se eff ects of globalisation on unemployment growth and a wor sening

of income distribution, living standards ar e lower ed and pover ty incr eases. In a word,

globalisation brings in both benefits and misfor tune for China.



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Wher eas, Stiglitz (2006) pointed out that globalisation may have contributed to r aise

the level of GDP and services in some countries, but it has not helped most people,

even in these countries wher e the dilemma is that globalization may have m ade the

countr y rich, but with poor people.

As Stiglitz points out ³The advocates of globalisation have claimed that ever yone will

benefit economically, ther e is plenty of evidence from developing and developed

countries that ther e ar e many loser s in both´.

The World Bank exemplified that globalisation has helped a lar ge number of

developing countries, but it must be har nessed better to help the world¶s poor est.

Most mar ginalized countries have improved the level of their citizens, according to

the r epor t, ³Globalisation, Growth and Pover ty: Building an Inclusive World

Economy´ (World Bank, 2002). In contr ast, the Human Development Repor t under

the United Nations Development Progr am (UNDP, 1992) estimated that 20 per cent

of the world¶s population in the developed countries r eceive 82.7 per cent of total

world income, while 20 per cent of the people in the poor est countries r eceive only

1.4 per cent (UNDP, 1992).

The same Human Development Repor t (1996) shows that over the past thr ee

decades, only 15 countries have en joyed high growth, while 89 countries wer e wor se

off economically than they wer e 10 or mor e year s earlier . In 70 developing countries,

the pr esent income levels wer e less than those in the 1960s and 1970s. As the

r epor t said ³Economic gains have benefited gr eatly a f ew countries at the expense of

many´. Clearly, pover ty and inequality ar e r apidly acceler ating since 1980 with rising

of globalisation ( UNDP, 1996).



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To sum up, the double-sided natur e of globalisation illustr ates that it is good for

developing countries, but to which extent it is good for those countries is the key

issue, it is easy to see that for diff er ent ar eas and diff er ent groups of people,

globalisation either alleviates or exacerbates pover ty problem. Some developing

countries such as China ar e gr eat beneficiaries of globalisation and people ther e ar e

gr adually getting rid of pover ty, while, by the beginning of the 1990s, most people in

Sub-Sahar an Africa wer e poor er than they had been thir ty year s befor e.

Over all, some economists ar gued that globalisation brings in economic prosperity,

which is a source of improvement of living standard and pover ty r eduction. While

other s have expr essed concer n that globalisation is not making lif e better for those

who most need its promised benefits. Actually, to some extent, both these two

viewpoints ar e r easonable and the two-side impact of globalisation on pover ty r elief

is not contr adictor y.

Conclusion

As ever y coin has two sides, globalisation itself has two -side natur e. As f ar as

diff er ent r egions and diff er ent groups of people ar e concer ned, globalisation poses

diff er ent impacts. Ther efor e, this paper attempted to examine such impact by

analyzing fir stly the conceptual fr amewor k and liter atur e about globalization. Then,

the r elation between globalisation and economic growth. Finally, The impact of such

economic growth engender ed by globalisation , in pover ty r eduction .



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Thus, it could be concluded that the WB r epor t (2000/01) which was submitted by

the World Bank Development Resea rch Group, David Dollar and Aar t Kr aay, with the

title ³Growth is good for the poor ́, ar gues that existing patter ns of globalization ar e

inher ently good for the pover ty r eduction, and countries mor e globalised have a

better r ecord of economic growth, pover ty r eduction and inequality r eduction than the

less globalised ones. While Simultaneous r epor t by the United Nations Development

Progr amme (UNDP, 1998) found that inequalities between the rich and the poor

within and among countries ar e quickly expanding, due to globalization and

liber alization.

Fur ther mor e, the third world was made mar ginal. Although advances have been

made for some countries, the problem of global pover ty still r emains and even

grows. As Bhalla said, ³Pover ty in the poor countries of the world is one of the most

crucial issues of our time. Hundr eds of millions of human beings exist on standards

of living that would be unthinkable in the rich countries.´ (Bhalla, 2002, p1).

It seems clear that, globalization has been rising while income inequality and pover ty

have not been f alling. However , ther e ar e two main groups in the liter atur e. One

group str essed that globalization r educes pover ty while the other emphasized that

economic globalization is a main cause of inequality and pover ty .



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