By: Cadet Maury Denton
Globalization is broadly defined as the growing economic interdependence of countries around the world. By opening to foreign trade and investment, a country can experience increased flows of goods, capital, and knowledge. It is believed that globalization is the key developmental strategy in promoting economic growth and reducing poverty. Some critics, however, feel the effectiveness of globalization is overstated and the overall concept has become too overwhelming when evaluating a country’s policies. In “Spreading the Wealth” and “Trading in Illusions,” the authors discuss the controversial topics in regards to the globalization issue.
First, both articles explain the process of global economic integration. Dollar & Kraay explain that globalization involves comprehensive institutional reforms and revolutionary changes in telecommunications and trade. New institutions are established in order to strengthen property rights. More developing countries are moving from planned economies to market-oriented ones. Rodrik makes the counterargument that an exaggerated faith in integration has developed in the world economy. “Investor sentiment” and “competitiveness in world markets” have become the major determinants of a developing country’s evaluation. He also explains that countries fail to realize the financial cost of admission requirements for the WTO and other organizations. These countries have to implement many comprehensive economic standards in order to create sound financial systems. The integration orthodoxy describes how countries have realized that openness does not always deliver its promise. They are allowing their faith to absorb the bad outcomes and the idea of “globalization above all” is crowding out alternatives that could provide more domestic growth for these developing countries.
Poverty is a major issue in the world economy. Countries are constantly trying to narrow the gap between the rich and the poor. Dollar & Kraay argue that globalization produces high growth rates that lead to higher incomes for the poor. China is the best example of a developing country that has substantially reduced poverty. Global inequality peaked in the 1970s and began to decline in 1980, mainly due to China and India. These countries accounted for a third of the world’s population and 60% of the world’s poor. Dollar & Kraay feel increased inequality stems from domestic education, taxes, and social policies. Uganda and Vietnam are two great examples of very low-income countries that have witnessed fast growth rates through the openness of their economy. Even China’s income distribution has been unequal at times, but the income of the poor has still risen rapidly. Rodrik believes that globalization is bad news for the poor. It diverts human resources, administrative capabilities, and political capital from critical matters within the domestic infrastructure. He states that there is not sufficient evidence to justify the correlation between open trade and poverty reduction. This could be detrimental for it removes the choice of development strategy from public debate.
Openness to foreign trade and investment is an integral part to the globalization process. This has been the main source of economic growth for many developing countries. Through economic integration into the world economy, migration is a large part of poverty reduction. The movement of people helps the economy grow and recycle its skilled and unskilled workers. Dollar & Kraay state there are three major benefits of exporting country of relatively unskilled workers. First, it reduces their labor force thus raising wages for the workers left behind. Second, migrants send remittances back home to their families. India, for example, gets six times as much in remittances as it gets in foreign aid. Lastly, migration encourages transnational trade and investment networks for the developing country.
Rodrik presents a counter argument that the developing country goes through a “brain drain” as workers are leaving the country. Rodrik stresses that there is actually a positive relation between import tariffs and economic growth. He further explains that the main catalysts for poor growth are ineffective institutions, geographic locations, and unsuitable macroeconomic policies.
Globalization can be an extremely effective tool for increased development. In order to prevent the abuse of this system, the rich countries need to devise more effective ways to integrate the poor communities into the world economy. These development strategies need to be tailored particularly towards domestic strengths. By achieving successful integration, we can improve the infrastructure of the world economy and repress the disillusionment of failed globalization.
Dollar, David D. & Kraay, Aart. “Spreading the Wealth.” International Economics & International Economic Policy. Edited by King & King, 4th Edition.
Rodrik, Dani. “Trading in Illusions.” International Economics & International Economic Policy. Edited by King & King, 4th Edition.
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