vahdi boydaş, mensur boydaş, social policy women
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Vahdi Boydaş, Mensur Boydaş, Social Policy WomenTRANSCRIPT
Globalization and Income Inequality
One Perspective
Protester before the meeting of the WTO in Doha in 2001, “Globalization leads to the North getting richer, and the South getting poorer… This is a direct consequence of globalization, and we need to stop this from continuing…”
Questions of Interest
What is the relationship between “globalization” and income inequality?
Activists say that globalization has resulted in further impoverishment of the poorest – is this true?
Define “Globalization”
Trade
FDI
Capital Flows
Multilateral Institution(rules, structural adjustment)
Food Aid
Migration
Trade
How does an increase in trade affect income?
Some answers may be_______.
Measurement of Income
– data– definitions
FDI andOther Issues
same typeof analysis
Many Factors
1. starting conditions2. comparative advantage3. trade policy4. domestic policy and governance
Economic integration from…
Trade (goods and services)– Level of trade, scope (more services)– Rules for trade
Foreign Direct Investment– Multinational Corporations
Capital Flows Importance of Multilateral Institutions
– Providing rules– Implementing structural adjustment programs
Three Waves of Globalization
Source: Foreign capital stock/developing country GDP: Maddison (2001), table 3.3;
Merchandise exports/world GDP: Maddison (2001), table F-5; Migration: Immigration and Naturalization Service (1998).
Importance of Trade
Share of international trade in total output (exports plus imports of goods relative to GDP):– Developed countries: 32 to 38% between 1990
and 2001 – Developing countries 34 to 49% (same period)– Varies a lot between countries
Currently, trade is deeper, different
Merchandise trade to merchandise production – almost 36% for the United States, – 3 times pre-WWI– Share of imports/exports as percent of production greater
Price convergence greater – i.e., 1870 Liverpool price of wheat greater than Chicago
by 60%, now difference 15% Increase in multinational corporations (MNCs):
– Trade is often transfers between subsidiaries– Firms draw on suppliers on a world-wide basis for
manufactured inputs
Includes trade in services
What Are MNCs?
An international corporation with headquarters in one country and branches in a wide range of developed and developing countries.
Examples include General Motors,Coca-Cola, Firestone, Philips, Volkswagen, British Petroleum and Exxon.
Role of Multinationals
Important since the East India company 1914 only a few MNCs – even in 1970 not as
important 60,000 parent operations and 500,000 foreign
affiliates account for 25% of global output, 1/3 in host counties
US based MNCs account for 19% of US GDP– Account for 63% of U.S. goods exports and 40% imports
U.S. Foreign Direct Investment
024
68
101214
161820
1914 1929 1960 1996
U.S. FDI AbroadFDI in U.S.
(as percent of U.S. GDP)
Source: Bordo et al. (1999)
Foreign Direct Investment
Mostly FDI complements trade in goods (does not substitute) – MNCs are conduitsfor trade– 1994 36% of U.S. exports were intra-multinational
transactions– Exposes services to international competition
Can deliver services through sales by foreign affiliates Increases competition in sectors difficult to exchange
across borders
FDI to Developing Countries is Resilient
(US$ billions)
0
50
100
150
200
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
0
400
800
1200
1600
Developing countries Global total
FDI to Developing Countries
Global FDI
Sources: World Bank staff estimates; UNCTAD, World Investment Report 2001.
International Capital Flows
Motivations:– Reduced barriers– Desire of investors to diversify– New financial instruments
Categories: – Foreign direct investment (less volatile)– Portfolio (stocks and bonds)– Bank lending
Huge Increase
Cross border transactions in bonds and equities:– 9% U.S. GDP in 1980, 223 % in 1998– Average daily turnover was $1.5 trillion in April 1998,
compared to $0.6 trillion in April 1989– Overstates changes in ownership (trading and retrading of
same securities) FDI is about ¼ of international capital flows
Lets Look at the Connections…
How will foreign direct investment affect incomes? (micro side)– Employment– Development of human capital– Wages
Evidence
MNCs and wages
New research that has evaluated wages of all MNCs in Chile, Mexico, Colombia, Taiwan, Venezuela, and Turkey– “foreign-owned plants pay
higher, often substantially higher, wages than locally owned firms.”
– Relevant comparison is with locally owned firms, not U.S. firms
– No evidence of spilloversto increase wages of local firms
Graham argues that:
Ratio of compensation of foreign affiliates to the average domestic manufacturing wage:– All countries – 1.5– High income countries – 1.4– Middle income countries – 1.8– Low income countries – 2.0
With FDI – an antidote of displacement of small agricultural producers
In middle income countries-hypermarkets From wet markets to supermarkets Supermarkets (Carre Four, Wal-Mart, etc.)
– Standards: food safety and quality– Volume and Seasonality– International supply chains
Impact on local producers– Consolidation: need for capital– Displacement
Trade
With trade several economic impacts– Resource Adjustment – transitions in the labor market
What kind of a social safety net exists? What impact high rates of unemployment?
– Import competing industries Can be displaced Sometimes with developed country subsidies
– Exporting industries Owners of capital versus labor Difficulties in competing in international markets
– Tariffs, standards
China
Accession to the WTO Small overall positive impact on mean income But:
– Rural families lose– Urban families gain
Competition from imports Geography matters
– North east looses – feed grain production (falling relative prices)
– Access to infrastructure and markets matter
Argument About Trade and Growth
World Bank argues that trade openness increases growth
Divide world into “globalizers” and non-globalizers
Evaluate the growth rates and other characteristics of these groups
Non-globalizers include failed states
Change in Trade/GDP for Selected Countries, 1977-97
Source: World Bank (2001)
Characteristics of More Globalized and Less Globalized Developing Economies
(population-weighted averages)
Source: Dollar (2001)
Rodrik: studies are flawed
“Open” and “closed” relate to indicators, not to policies, and correlated with macro-economic policies, geography, institutions
Once these controlled for, no correlation Relationship between trade openness and
growth depends on a host of factors India and China: growth before openness
Impact of “Globalization” on Income
Many factors may be affecting income Developing countries not uniformly involved
in the world economy Ravallion discusses that data and
measurement really matter
Popular View
“first, divergence in output per person across countries is perhaps the dominant feature of modern economic history. The ratio of per capita income in the richest versus the poorest country has increased by a factor of 6…”
Note: from Pritchett 2001 (Bhalla, pg. 23)
What did Pritchett measure?
U.S. taken as a representative “rich” economy Took the poorest economy as a reference Average American 50 times richer in 1950 and 1960 Today more than 70 times as rich Also measured against the 10th poorest country
Ratios of Mean Income of the United States and of the Poorest Country
Note: Mean incomes are in constant purchasing power parity (PPP) dollars, 1993 base. The poorest and 10th-poorest countries were chosen on the basis of per capita income, 1993 PPP, for the selected years.
Sources: World Bank, World Development indicators, CD-ROMs, 1998, 2001; Maddison (2001); Penn World Tables, various years
47.0 48.3 47.1 47.4
51.6
71.3
22.5
27.631.0 31.3 32.5
44.6
0
10
20
30
40
50
60
70
80
1950 1960 1970 1980 1990 2000
ratio
United States / poorest country United States / 10th-poorest country
Le
soth
o
Le
soth
o
Gu
ine
a-B
issa
u
Nig
eria
Ta
nza
nia
Bh
uta
n
Ta
nza
nia
Bu
run
di
Sie
rra
Le
on
e
Za
mb
ia
Ca
mb
od
ia
Ta
nza
nia
Convergence or Divergence? It Depends
Note: For each year, the unshaded bar represents the income ration of the mean-to-20 poorest countries in that year.
Sources: World Bank, World Development Indicators, CD-ROMS, 1998, 2001; Maddison (2001); Penn World Tables, various years.
22.96
26.19 25.7
30.84
36.33
22.96
24.99
22.3
15.65
9.48
0
5
10
15
20
25
30
35
40
1960 1970 1980 1990 2000
ratio
Ratio of mean income of top 20 to bottom 20 countriesRatio of mean income of top 20 to bottom 20 countries (1960s set of countries)
Gini Coefficient
Equal to one if all income in the world accrued to one person
Equal to zero is incomes are equally distributed
Distribution of Income or Consumption
Percentage Share of Income or Consumption Economy
Gini Index
Lowest 20%
Second 20%
Third 20%
Fourth 20%
Highest 20%
Norway 25.2 10.0 14.3 17.9 22.4 35.3
Indonesia 36.5 8.0 11.3 15.1 20.8 44.9
United States 40.1 4.8 10.5 16.0 23.5 45.2
China 41.5 5.5 9.8 14.9 22.3 47.5
Nigeria 45.0 4.0 8.9 14.4 23.4 49.3
Russian Federation 48.0 4.2 8.8 13.6 20.7 52.8
Mexico 53.7 3.6 7.2 11.8 19.2 58.2
Brazil 60.1 2.5 5.7 9.9 17.7 64.2
Sierra Leone 62.9 1.1 2.0 9.8 23.7 63.4
World Individual Income andConsumption Inequality
Soruce: Deniger and Squire 1996 World Income Inequality Database www.wider.unu.edu/widl
Regional Estimates of Inequality
42.140.0
66.1
61.2
55.8
29.9
50.9
39.4
67.5
60.1
56.5
30.2
49.3
41.0
67.5
56.754.5
41.0
0
10
20
30
40
50
60
70
80
East Asia South Asia Sub-SaharanAfrica
Middle East andNorth Africa
Latin America Eastern Europe
Gini
1960 1980 2000
Head Count for Extreme Poverty
Soruce: Deniger and Squire 1996 World Income Inequality Database www.wider.unu.edu/widl
Growth reduces absolute poverty
However, proper policies increase participation
of the poor in growth
0
10
20
30
40
50
60
70
80
90
100
East Asia
ExcludingChina
SouthAsia
Sub-Saharan
Africa
LatinAmerica
MiddleEast/N.Africa
Europe &Cent. Asia
Per
cen
t
1990 2000 (estimate)
Poverty Rate Percentage In Developing Countries
Source: World Bank (2003)
0
100
200
300
400
500
East Asia
ExcludingChina
SouthAsia
Sub-Saharan
Africa
LatinAmerica
MiddleEast/N.Africa
Europe &Cent. Asia
Mil
lio
ns
of
Pe
op
le
1990 2000 (estimate)
Population Living below US$1 per Dayin Developing Countries
Source: World Bank (2003)
What Do We Know?
No studies on global income inequality, trends and causes widely accepted
Ravallion and others: no correlation growth and income inequality– Lots of action: hidden by averages
Data and measurement really matter (Ravallion)
Less absolute poverty than before Are the poor poorer?
What’s Important
Connections– Carefully define aspect of globalization– Identify connections to income growth – Remember lots of factors at play– Initial starting conditions matter
These caveats don’t mean current trade rules are acceptable
Define “Globalization”
Trade
FDI
Capital Flows
Multilateral Institution(rules, structural adjustment)
Food Aid
Migration
Trade
How does an increase in trade affect income?
Some answers may be_______.
Measurement of Income
– data– definitions
FDI andOther Issues
same typeof analysis
Many Factors
1. starting conditions2. comparative advantage3. trade policy4. domestic policy and governance