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Globalization and poverty

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Title:
Globalization and poverty a multidimensional relationship
Creator:
Essary, Courtney Ann
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English
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viii, 71 leaves : ; 28 cm

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Subjects / Keywords:
Globalization ( lcsh )
Poverty ( lcsh )
Economic history ( fast )
Globalization ( fast )
Poverty ( fast )
Social conditions ( fast )
Economic conditions -- Developing countries ( lcsh )
Social conditions -- Developing countries ( lcsh )
Developing countries ( fast )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references (leaves 67-71).
General Note:
School of Public Affairs
Statement of Responsibility:
by Courtney Ann Essary.

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|University of Colorado Denver
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Auraria Library
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All applicable rights reserved by the source institution and holding location.
Resource Identifier:
50726693 ( OCLC )
ocm50726693
Classification:
LD1190.P86 2002m .E77 ( lcc )

Full Text
GLOBALIZATION AND POVERTY:
A MULTIDIMENSIONAL RELATIONSHIP
by
Courtney Ann Essary
B.A., Vanderbilt University, 1995
A thesis submitted to the
University of Colorado at Denver
in partial fulfillment
of the requirements for the degree of
Master of Public Administration
2002


This thesis for the Master of Public Administration
degree by
Courtney Ann Essary
has been approved
by
~c< JrnJ
Date


Essary, Courtney Ann (M.P.A., Public Administration)
Globalization and Poverty: A Multidimensional Relationship
Thesis directed by Assistant Professor Christine Martell
ABSTRACT
Rapid changes in technology that have made the transport of people, ideas,
information, and goods much less expensive along with trade and foreign direct
investment have opened up the worlds economies to historys most rapid period of
globalization. Meanwhile, nearly two-thirds of the worlds developing country
population lives without access to clean water or sanitation, besieged by disease, and
without access to health care or education services. Poverty remains hugely
prevalent. This study looks at the relationship between globalization and poverty and
finds that globalization can indeed be a positive force in helping to reduce poverty
levels. Both economic indicators, as in GNP per capita and GDP real growth rates,
and social indicators, as in infant mortality and illiteracy rates, show significant
improvement as functions of globalization. Despite the multitude of positive results,
however, globalization also has a strong association with widening income inequality.
The results suggest that globalization is not the nasty vehicle that many purport it to
be, nor is it a uniquely miraculous tool for development. It is useful in improving the
quality of life for people in developing nations if implement along with social
protection measures. Moreover, more research should be done to address to problem
of growing inequality.
This abstract accurately represents the content of the candidates thesis. I recommend
its publication.
Signed
m
hristine Martell


ACKNOWLEDGMENT
My thanks to my thesis director, Dr. Christine Martell, for her patience with me
during the writing of this thesis. I also wish to thank Dr. Robert Gage, my second
reader, and the staff of the Graduate School of Public Affairs for their support during
the past two years.


CONTENTS
Figures....................................................vii
Tables.....................................................viii
CHAPTER
1. INTRODUCTION...............................................1
Background...............................................2
The Global Debate........................................5
2. POVERTY AND DEVELOPMENT...................................14
The Face of Poverty.....................................14
Development Strategies..................................17
3. THEORY....................................................20
The Market Model........................................20
4. RESEARCH QUESTION, HYPOTHESES, AND MODEL..................26
Research Question.......................................26
Hypotheses and Model....................................26
5. DATA AND METHODOLOGY......................................31
Limitations of the Data.................................33
Variables...............................................33
6. RESULTS...................................................41
Descriptive............................................42
v


Indonesia: A Special Case...........................44
Model Results..................................... 47
7. RECOMMENDATIONS AND CONCLUSIONS.........................57
REFERENCES..................................................67
vi


FIGURES
Figure
2.1 Percentage of Population with Access to Safe Water........................16
vii


TABLES
Table
5.1 Summary of Independent Variables..........................................34
5.2 Summary of Dependent Variables...........................................35
6.1 Percent Change in Dependent Variables 1990-2000...........................42
6.2 Results of Equation 1: GNP Per Capita....................................48
6.3 Results of Equation 2: GDP Real Growth Rate..............................48
6.4 Results of Equation 3: Gini Coefficient..................................49
6.5 Results of Equation 4: Infant Mortality..................................49
6.6 Results of Equation 5: Female Illiteracy.................................50
6.7 Results of Equation 6: Male Illiteracy...................................50
viii


CHAPTER 1
INTRODUCTION
The world is in a constant state of flux now more so than ever. This can be
attributed to the rapid changes in technology that have made the transport of people,
ideas, information, and goods much less expensive and easier than at any time in
history. Furthermore, the global economy has become more intertwined as capital
flows across borders and free trade are increasingly more prevalent. This
combination of economic and technological integration is the phenomenon we know
as globalization.
Meanwhile, nearly two-thirds of the worlds developing country population
lives without access to clean water or sanitation, no food safety, malnutrition, disease,
and no access to health care or education services. Despite the efforts of many
international organizations, non-governmental organizations, and assistance programs
throughout the past two decades, poverty persists and the majority of people living in
low-income and developing nations experience a wretched quality of life.
A debate surrounding globalization and its relationship to poverty has become
increasingly more prevalent over the past several years. There are people who
purport that globalization has worsened the human condition in developing nations
(Gray, 1998; Weisbrot, Baker, Kraev, and Chen, 2000; Weller, Scott, and Hersh,
2001; Seabrook, 2001). There are also those that embrace the market model and
1


claim that globalization helps to reduce poverty levels as openness, technology, and
trade increase efficiency and competition and provide more opportunity to people
(Romer, 1992; Lustig and Stem, 2000; Dollar and Kraay, 2001; Masson, 2001). The
multidimensional nature of both globalization and poverty complicates the debate, but
must be considered in order to arrive at the most comprehensive understanding of
their relationship. This paper aims to describe the effect of global integration on the
many variables of poverty and determine if the empirical market model truly works.
Background
It has been estimated that in 1998 1.2 billion people world-wide had
consumption levels below $1 a day and 2.8 billion people lived on less than $2 a day.
These figures are lower than earlier estimates, indicating that some progress has taken
place, but they remain deplorable in terms of quality of life and the human condition
and much more remains to be done (World Bank, 1999). Although these estimates
are useful as a base measure of how severe global suffering is, there are many other
dimensions of poverty that must be included in order to fully understand and thereby
move to decrease poverty levels.
The broad picture of poverty painted by drawing a hypothetical international
poverty line of living on less than one dollar a day does not portray the scenario
precisely enough. Such a sweeping definition knows no national boundaries and
2


ignores the level of gross national product (GNP) per capita as well as other important
socioeconomic indicators (Todaro, 1981). Poverty must be looked at in the context of
its many dimensions and determined among the variables of income per capita,
income distribution, health, education, sanitation, and choice. The imaginary poverty
line does not grant this range and consequently, does not display the full picture.
Complicating attempts to unveil any association between poverty and
globalization is the fact that current studies use different means of measuring poverty.
The World Bank poverty index is often criticized since it measures poverty in
developing nations as the percentage of the population living on less than one dollar a
day. This method is typically below international standards for poverty and does not
address the many other factors that affect total quality of life in a nation. Studies
using this measure have regressed changes in per capita income as a function of trade
and foreign direct investment (FDI) and found that economic integration contributes
to higher incomes and higher gross domestic product (GDP) real growth rates for the
poor in developing nations (Masson, 2001; Dollar and Kraay, 2001; Stem et al.,
2002).
On the other hand, studies by the Economic Policy Institute (EPI) regress Gini
coefficients across selected regions and time periods as a function of FDI and trade to
find an association between increasing income inequality and global economic
integration (Weller, Scott, and Hersh, 2001). The Center for Economic Policy
3


Research (CEPR) considers changes in mortality rates, life expectancies, literacy
rates, and school enrollment in two lump sum categories of countries determined by
their levels of the chosen indicators at the start of one twenty year, and one fifteen
year period. The average yearly changes of these socioeconomic indicators are
considered across categories and the findings indicate that trade liberalization and
FDI have had no positive effect on the quality of life in these countries (Sforza-
Roderick, Nova, and Weisbrot, 2000; Weisbrot, Baker, Kraev, and Chen, 2001).
According to some studies, GDP real growth rates have risen more in
developing countries that have opened themselves up to global integration than in any
other nations and this growth has been ultimately effective in reducing poverty in
these countries (Lustig and Stem, 2000; Dollar and Kraay, 2001). Weisbrot, Baker,
Kraev, and Chen (2001) use GDP per capita growth rates in their analysis and their
results are not as promising as those that use the annual real growth rate. These
particular analyses highlight the dichotomy in current literature on growth and its
benefits. The use of different variables to make a value judgment about the
relationship between two general concepts (i.e., globalization and poverty) paves the
way for policy that is pedestrian at best. There will naturally be different outcomes
when different measures are used.
Hence, the debate about globalizations consequences endures because the
measures of both globalization itself and poverty are consistently different. Poverty
4


includes more than daily financial subsistence, it stems from a lack of education,
health, sanitation, and access to social services and infrastructure. Additionally,
globalization is comprised of more than just technology or just financial flows; it
includes both the technological and the economic variables.
The Global Debate
Globalization is the ubiquitous term that has come to describe the modem
world economy and that inspires incessant political debate. It is a phenomenon that
has acquired a bevy of friends and foes that all spend their time immersed in a ping-
pong dialogue of its merits and harms. This is another major problem surrounding
the entire globalization dialogue. Everyone has an opinion, but there is no
engagement of the two sides and few are offering any tangible solutions.
Nevertheless, myriad articles and books have been written on the subject.
Several slightly differing definitions of globalization have emerged amidst the
debate. Some describe it as the march of international capitalism (Crook, 2001) or
the growing integration of economies and societies around the world(Stem, 2002),
while others label it a phenomenon in which national boundaries are breaking down
as a result of instant communications, footloose capital, and the relatively free
movement of skilled labor (Barber, 1998: 15). Although each of these definitions
reflects a credible view of globalization, Stems will be used as a foundation for the
5


purposes of this study. This definition is concise without being constraining, yet
neutral enough to allow for a discussion about the consequences of globalization.
Added to this definition, however, is integration depicted as both an economic
and a technological phenomenon. The flow of ideas, information, products, and
services across borders has been increasingly facilitated with the progressive nature
of modem technology. Since about 1985, the world has welcomed a growing
ubiquity of information processing, computer byte expansion, advances in bio- and
medical technologies, and the commercial and personal application of the Internet
(Pettis, 2001). Explicit in the definition of globalization used herein is the notion of
technology. The falling costs of telecommunications and information transportation
have made integration much easier in recent years and have sped up the globalization
process as never before seen throughout history. In brief, globalization can be
defined as the technological and economic integration of societies throughout the
world.
The debate surrounding globalization relates to its purported mixed outcomes.
The anti-globalists so effectively mobilize themselves that they have become the
media darlings of nearly every international trade or economic forum is now greeted
by protest. The World Trade Organizations (WTO) annual meetings in Seattle in
1999 and Genoa in 2001 made the front pages of newspapers throughout the world as
a result of the effectively potent voices of these dissenters.
6


The Sierra Club, Ralph Naders Public Citizen consumer group, the AFL-
CIO, and the Institute for Policy Studies are just a few of the organized groups that
have mounted large campaigns against globalization. These groups perpetuate a
negative view of globalization and through grassroots organization recruit new
followers by the hundreds. Scholars and political leaders on both sides of the
political spectrum have also spoken out against the effects of globalization. Their
claims that globalization can be a severely disruptive force are not without merit and
the power of their message has become a force that must be reckoned with.
The anti-globalists tend to blame all of the worlds social and economic ills on
globalization. One of the most frequently vocalized issues is the lack of oversight
involved with global integration. Because of this absence of supervision, the spread
of new technologies does not create a universal free market but an anarchy of
sovereign states, rival capitalisms, and stateless zones (Gray, 1998: 7). This
suggests that there would be a less hostile environment if monitoring and
redistribution existed. Anarchy could ultimately put the safety of communities at risk
as there is no method of conservative resource allocation and people could begin to
covet the increasingly scarce natural resources. As the presence of manufactured
goods continues to grow, human wants will also grow while the earths resources
remain limited. Global integration is portrayed under these circumstances as the
destroyer of humanity, relationships, and cultures (Seabrook, 2001).
7


The concern for the anarchic results of globalization has risen as integration
has continued. When economies in one part of the world falter, they have the
potential to rattle economies everywhere. This phenomenon of contagion frightened
people during the Asian Financial Crisis of 1997 enough, that the possibility of a
more regulated global economy gained prominence. Some go as far as to suggest
protectionism, while others simply call for regulation. The crux of this argument lies
in the idea that in good times, globalization spreads the wealth to a select few, and in
bad times, everyone gets hurt.
The lack of oversight also adds human rights violations to the list of concerns
of those who protest globalization. They protest that governments no longer have the
ability to protect the rights of their citizens against those of multinational corporations
(Tyson, 2001). Skeptics point out that workers in developing countries lack the
rights, legal protections, and union representation that their counterparts in rich
countries enjoy. There are enormous wage discrepancies between industrialized and
developing nations that are colored as advantageous only to the multinationals. In
industrialized countries, critics argue that entire communities are decimated when
corporations close manufacturing plants in the investors homeland in order to move
them to a developing country where labor is less expensive. In industrialized nations,
labor unions themselves are shouting out that they are suffering from the relocation of
these plants.
8


There also exists the notion that globalization is in itself the Americanization
of the globe and it threatens other nations culture and sovereignty. As McDonalds
fast food restaurants and Levis blue jeans infiltrate developing nations youth, many
of the intelligentsia furrow their brows in consternation over the western influence.
They wonder if their nation will lose its entire history as the world moves forwards
and technology improves. Likewise, some American scholars have begun to ponder
whether this seemingly omnivorous influence helps to create the widespread anti-
American sentiment in certain developing nations.
Finally, the foes of globalization fear it to be an economic vehicle that only
serves to widen the inequality gap throughout the world and exacerbate poverty. In
effect, their claim is that global integration helps the rich get richer and the poor get
poorer (Seabrook, 2001; Weisbrot, Baker, Kraev, and Chen, 2000; Weller, Scott, and
Hersh, 2001). A study from the United Nations that determines that while
globalization does benefit some, the annual sales of General Motors are greater than
the gross domestic products of both Thailand and Norway provides the anti-globalists
with the kind of fuel on which they thrive (Halibrunn, 1999). In brief, while some
multinational entities generate copious growth and income, the rest of the world is left
behind.
While plenty of information highlights the evils of globalization, the other
side of the debate that favors globalization is equally prominent. Several recent
9


studies have shown that countries that have embraced openness to the rest of the
world have seen higher growth and rising standards of living than those that have not
(Lustig and Stem, 2000; Masson, 2001; Dollar and Kraay, 2002). There are,
however, people who find that globalization creates unimagined opportunities for
many people and nations, despite the fact that they may not be the movements most
ardent supporter (Streeten, 1998). The proponents recognize that globalization is far
from perfect, but that its potential positive effects far outweigh the negative ones.
New population studies are also pointing to the possible benefits of global
integration on the status of women and the reduction of infant mortality and fertility
rates. There has been a substantial reduction in fertility rates in several developing
countries. In India alone, there may be 600 million fewer people than expected by the
year 2100 (United Nations, 2002). According to Gita Sen, a professor of economics
at the Indian Institute of Management in Bangalore, this fertility reduction in the case
of India is due to an increasing awareness and knowledge among women about the
outside world that has been driven by technological advances and consequently, a
push to control their own fertility (Crossette, 2002).
Even in some of the most remote areas in Bangladesh women may have
access to satellite television and can gamer ideas about contraceptives and a suitable
family size (Crossette, 2002). The simple transmission of ideas to them has helped
10


improve their situation. Perhaps as the years and data on technological access accrue,
the trends we now see will be even stronger.
Furthermore, multinational corporations are not the evil slave drivers that they
are often portrayed as when they invest in a country other than their own. They have
as much to gain from cooperation and conscientious global integration as anyone else
(Micklethwait and Woolridge, 2001). They cannot ravage the environment or
provide destitute working conditions to factory employees because of a heightened
global conscience. They also have a vested interest in things like developing roads
and ensuring that there is access to safe water and good health services since they
want their employees to be able to come to work every day. Furthermore, evidence
suggests that the wages and per capita income have steadily increased in the
globalizing countries (Masson, 2001) due to foreign investment.
The employment the multinationals provide grants non-prostitution
opportunities to girls and allows the people to provide for their families better than
they had ever been able to before integration. Those in favor of globalization attempt
to remind their opposition that the U.S. went through a period of child labor and harsh
working environments in its developing stages. In some cases, the lack of formal
global regulation tends to make operating criteria more stringent for multinationals.
They are subject to the laws of several nations rather than just one when they decide
to open up a branch or manufacturing plant in another country.
11


Globalization proponents recognize the struggle that global integration has
with traditional culture, but see a backlash response in the clash. In other words,
people respond to the market power of McDonalds and WalMart by placing an even
greater emphasis on their cultural identity. They maintain that there can be a balance
between the two, despite an initial period of conflict, for globalization means a great
range of choices (Micklethwait and Woolridge, 2001). History suggests that
countries can maintain their cultural identities even while globalizing. The worlds
richest countries are very different from one another, as comparisons of the U.S.,
Japan, and Denmark quickly emphasize (Stem, 2002). Moreover, liberal virtues such
as accountability, transparency, and property rights are no more American than they
are western European.
The most common line of support is that globalization increases efficiency
and competition (Micklethwait and Woolridge, 2001). This is part of the market
model that connects an increase in efficiency and competition to continued economic
expansion and the creation of new jobs and other opportunities. Competition yields
benefits to consumers in the form of lower prices. This theory provides empirical
basis for this side of the argument.
While this argument is valid, proponents of globalization are not propelled by
numbers and economic theory alone. There are social and human criteria behind their
stance. Former U.S. Secretary of State George Mitchell has been quoted as saying,
12


Where you dont have hope or opportunity, where you dont have economic growth
and job creation, you have the ingredients for instability (Institute for International
Business, 2001). He is referring of course, to the chaos that can result from
desperation and a lack of options.
Common to both camps on this issue is the idea of poverty in developing or
globalizing nations and whether it gets better or worse faced with a global economy.
Does global integration improve the human condition or worsen it? Many of the
globalization scholars are quick to point out that neither the processes nor the gains
that can accompany global integration are guaranteed. However, limiting a countrys
potential is far more detrimental than allowing it to experiment with open markets
and borders.
13


CHAPTER 2
POVERTY AND DEVELOPMENT
The Face of Poverty
Some characteristics of poverty are constant, one of these being that the poor
are disproportionately located in rural areas (Todaro, 1981). The majority of these
rural poor carve out their meager existence as low paid farmers or farm workers,
while the remaining few engage in areas of the gray economy. The weight of
poverty also falls most heavily on certain groups. Women and children are
particularly vulnerable to the horrors of poverty. The women often undertake a larger
household workload than men, are less educated, and have less access to
compensatory activities while children are plagued by inadequate nutrition, health
care, and education which thereby is detrimental to the quality of their future lives
(World Development Report, 1990).
A World Bank review of development experience reiterates the idea that
poverty is multidimensional in concluding that the most effective way of attaining
sustainable improvements in the lives of the poor are through pursuit of growth that
ensures productive use of the poors most abundant asset, labor, and by way of
widespread provision to the poor of basic social services (World Development
Report, 1990). This strategy of poverty alleviation combines human and financial
capital to elevate of the poors capacity to take advantage of increased opportunity.
14


The path out of poverty is bound to be one of incremental steps, particularly in
countries that are beginning from one of the lowest points, as those that this study
looks at have done.
As Figure 2.1 below shows, there has been a marked increase in the
percentage of the population in these countries with access to clean water. Such an
increase is necessary for survival and integral to the implementation of any other
poverty-reduction strategies. For example, during the last twenty-five years, the
percentage of the population with access to safe water in Bangladesh increased from
approximately 53 percent in 1975 to 79 percent in 1995. However, although the
percentages have risen there is still a long way to go in this fight. More than one
billion people still have no access to clean drinking water and approximately five
million people die each year as a result of waterborne diseases (World Health
Organization, 2000).
15


Figure 2.1: Percentage of Population with Access to Safe Water
Percent of Population With Access to Safe Water
- Bangladesh
hb China
Ghana
India
Indonesia
- Mexico
h Uganda
Source: World Development Reports, 1980-2000, World Bank. Authors own representation.
At the Millennium Summit in September 2000, the United Nations
Development Programme (UNDP) and its member states laid out an ambitious
agenda for reducing poverty, its causes, and manifestations. The goals included in
this agenda aim to cut poverty, hunger, and the proportion of people without access to
safe drinking water in half; achieve universal primary education and gender equity;
reduce under-five and maternal mortality by two-thirds and three-quarters
respectively; and reverse the spread of HIV/AIDS. This comprehensive approach to
fighting poverty uses 1990 as the starting benchmark and 2015 as the
achievement goal (UNDP, 2000).
16


The aims are perfectly targeted in light of contemporary development theory
in that they go after to roots of poverty and recognize the need for incremental and
long term changes. UNDP noted however, that the goals will be difficult for many
countries to achieve due to insufficient and inefficient public spending and inadequate
market access to developed countries among other reasons. But progress can be
made. The correlation between global integration and poverty appears and the
individual relationships between countries, their institutions, and the world
marketplace must be considered.
Development Strategies
As mentioned, poverty is multidimensional in character. It has many causes
and thereby should have many cures. Economic performance, public health
measures, education, infrastructure improvements, sanitation, and social services are
all a part of the battle to reduce poverty levels. The result of how these things interact
simply depends on where the war is being waged. This point is particularly important
as there will be no one size fits all solution to poverty, nor will there be a paradigm
for how nations should incorporate themselves into the integrating world.
Only to augment the difficulty in this endeavor, results will not be seen
immediately due to a lag time between investment, implementation, and outcomes.
Once political and social infrastructure are designed, implementation will take some
17


time as will the process of seeing tangible results in development indicators. This lag
is an impetus for ensuring that social safety nets are provided and no one is left
behind.
Just like the poverty that impedes it, development for a nation is
multidimensional. It should involve major changes in domestic and international
attitudes, social structures, and institutions as well as the acceleration of economic
growth, reduced inequality, and the eradication of absolute poverty (Todaro, 1981).
As such, Todaro maintains that development should inform the advent of three core
values in a given society: life sustenance (the ability to provide basic needs); self-
esteem (to be a person); and finally, freedom from servitude (to have the ability to
choose). Such broad values will manifest themselves in slightly differing ways across
various nations, but at the core they remain the same.
It is how to get from a developing to a developed nation where difficulty
arises. By nature, the so-called good life that development theory aims to achieve
comes with different interpretations by different people. Therefore, it is essential to
note this and adapt theory to practice with regular malleability. The common good is
not an intangible goal, rather it is an elusive one that can be achieved via improved
financial capital, human capital (via education and health measures), and improved
institutions.
18


Todaro (1981) also points to the three goals of development that should
accompany its values. Development should:
1. Increase the availability and widen the distribution of basic life-
sustaining goods.
2. Raise levels of living including higher incomes and more equitable
income distribution, better education, and the provision of more jobs.
3. Expand the range of economic and social choice to individuals and
nations.
The relationship between globalization and poverty is extremely important in
light of these goals, for both can implicitly affect development. Globalization has the
ability to provide financial capital, more and better jobs, choice, and the means to
improve human capital in developing countries. Poverty is affected by a lack of all of
these things. In this realization, a preliminary relationship between the two is
warranted.
19


CHAPTER 3
THEORY
The Market Model
Global opportunities and risks have outpaced global policy (Stem et al.,
2002). In fact, there is a noticeable lack of de facto global policy, but each
globalizing country is paving its own route into the world economy and each should
be able to do so with success. There are many different forms of capitalism operating
successfully throughout the globe. For instance, the anti-trust laws in the U.S. protect
competition, while those in the European Union (E.U.) protect the competitors.
Despite these different foundations, the two national bodies have not had many
problems in dealing with each other in the international arena. Metamorphoses of
capitalism and governing bodies is not only historically accurate, but the only
plausible scenario in the face of varying cultures and traditions.
The amazing speed whereby the world economy is changing is driven by
technology and the spread of ideas, information, and people across borders. FDI
subjects industries throughout the globe to the most advanced competitors who can
establish facilities within each national economy (given no great barriers to entry).
Poorer nations gain from the inflows of capital that FDI brings with it and the
introduction to the advanced technology, while the industrialized nations benefit from
20


lower consumer prices, increased efficiency, and competition (Micklethwait and
Woolridge, 2001).
The market model suggests that globalization works to decrease poverty levels
rather than the opposite. This argument offers hope for the worlds poor. As it stands
now, the worlds poor have less to lose and more to gain that the worlds rich. The
number of the worlds poor has declined by 200 million since 1980 (Dollar and
Kraay, 2001). Moreover, globalizing countries have seen a nearly five percent annual
growth rate of Gross Domestic Product (GDP) while others have seen a negative
growth rates (Stem, 2002; Dollar and Kraay, 2001).
Several of the studies that have been undertaken indicate that the countries in
which income inequality and poverty have increased are those that have not embraced
global integration (Lustig and Stem, 2000; Micklethwait and Woolridge, 2001; Dollar
and Kraay, 2001). Similarly, the developing nations that have opened themselves up
to foreign investment and trade have seen a decrease in poverty levels. The
distinction made between the globalizing nations and the non-globalizing nations
creates a rift in anti-globalization theory. For instance, a study examines poverty in a
country such as Zambia (Cobham, 2000), a country that has only just begun
considering the prospects of globalizing, will almost certainly have different results
than a study that looks at poverty in Mexico (Graham, 2000) that has been
implementing investment, technological, and trade strategies for several years.
21


As for inequality, claims that the acceleration of global integration makes only
the rich richer is contrary to what the market model suggests. Barro (1999) clarifies
this phenomenon in finding that inequality first rises and later falls as an economy
becomes more developed. Income distribution ostensibly has a delayed reaction
according to the market model. As it stands now, approximately 80 percent of the
worlds wealth rests with only twenty percent of the worlds population (Birdsall,
1998), but over time, based on market theory, this distribution may reach a point of
greater equilibrium.
Increasingly, globalization is becoming a reality. Within this reality is the
notion that it is ideas, not objects, that poor countries lack (Romer, 1992). The
market model that is considered herein and that has been espoused by many scholars
cites that the acquisition of knowledge through technological and economic
integration can provide citizens of the poorest countries with a vastly improved
standard of living (Romer, 1992; Dollar and Kraay, 2001; Masson, 2001).
Cheaper and faster transportation and revolutionary changes in
telecommunications have changed both the way the world conducts business,
political, and personal matters. Where it is now easy and inexpensive for two people
on different continents to keep in touch via electronic mail, it is also easy for
governments and a nations citizenry to innovate and improve their positions based on
what they leam from the surrounding world. Information and ideas are boundless in
22


scope and their availability has been exponentially augmented through the emergence
of new technologies. In this respect, the idea is that when a nation opens itself up to
the financial and ideological flows that encircle the globe, greater incentive,
efficiency, and opportunity for its citizens will arise.
As a precautionary note, however, countries that have integrated in to the
global market and seen sustained measures of success have done so only when
openness to foreign markets and technology is coupled with domestic reforms
concerning good governance, the investment climate, and social services (Stem et al.,
2002). This implies that when globalizing, a developing nation must take ownership
of domestic procedures and reform antiquated institutions and policies in order to
accommodate the technological change and a new market system. The inclusion of
such infrastructure will ultimately move the nation and its people to a system of
legitimacy and accountability so the processes are universally respected.
Equally as important as the economic changes are the social changes.
Education and health are integral to the overall economic well being of a nation.
People cannot take advantage of the market if they have no skills, or are not educated.
As Stem (2002) states, ...the combination of openness and a well-educated labor
force produces especially good results for poverty reduction and human welfare.
Hence, a good education system that provides opportunities for all is critical for
success in this globalizing world (p. 14). And at the very base level, the opportunity
23


to live a sanitary and disease-free life is of paramount importance in development.
People cannot take advantage of education if they are diseased or without a clean
water supply or sanitation.
Given the variables used in the current literature, the definition of
globalization used in this paper, and the recent emergence of comprehensive poverty-
reduction strategies, a combination of economic, technological, an social variables
should be used to determine any relationship between globalization and poverty.
Since globalization is defined as economic and technological integration, FDI, trade,
and technological data were considered. Technology has played an integral role in
transforming the way the world communicates and conducts business. Hence, the
extent of a countrys Internet and telephone exposure should be measured as
components of globalization in order to judge its effect on its peoples social and
economic well being.
The measures of poverty should include a variety of social and economic
indicators to paint a broader picture of its global conditions. Gross National Product
(GNP) per capita, GDP real growth rates, the Gini measure of income inequality,
infant mortality, and female and male illiteracy rates all reflect parts of poverty and
must be considered. The income and production measures are standard for a
quantitative look at poverty, but the other indicators are included for their more
qualitative insight. The distinction between the sexes in illiteracy rates is rightfully
24


made as the evidence finds the burden of poverty disproportionately on women in
developing countries. Moreover, it is becoming evident that increasing womens
opportunities in these nations will help to reduce poverty levels (Buvinic, 1997; UN,
2002). Along with illiteracy rates, infant mortality is a good indicator of a countrys
overall socioeconomic well-being.
In reviewing the literature surrounding globalization, China, Bangladesh,
Ghana, India, Indonesia, Mexico, and Uganda appeared several times in empirical
studies of how globalization affects poverty. In some instances, these countries were
included in analyses that purported that globalization had lowered their poverty rates
and elevated their per capita growth rates (Dollar and Kraay, 2001; Masson, 2001;
Graham, 2000; Lustig and Stem, 2000). In other instances, these nations appeared to
support the claims of the apostles of the dark side of global integration
(Chossudovsky, 1998; Cobham, 2000). These countries were chosen due to their
ubiquitous nature in the many articles written on the perils and benefits of
globalization.
Therefore, taken within the context of this paper, these nations will be
scrutinized in an effort to resolve the diverse results of previous research. The goal of
this work is to discover how globalization, specifically broken down into its
economic and technological components, affects poverty in these nations.
25


CHAPTER 4
RESEARCH QUESTION, HYPOTHESES, AND MODEL
Research Question
In light of the varied findings in current literature, questions about the effects
of globalization remain. To date, no comprehensive research has looked at the
multiple components of global integration in relation to the myriad components of
poverty. The question therefore remains: how does globalization affect poverty?
Alternatively stated, what is the relationship, if any, between the myriad variables of
global integration and poverty? The empirical market model suggests that
globalization, through economic and technological integration, should yield reduced
levels of poverty and this study aims to see if that is indeed true.
Hypotheses and Model
The model claims that poverty is a function of globalization. Poverty,
however, can be operationalized in a number of ways. This study adopts six
measures of poverty. First, poverty is operationalized as Gross National Product per
capita (GNP). Second, it is operationalized as the Gross Domestic Product real
growth rate (GDP). Third, poverty is operationalized as the Gini coefficient (G) to
reflect income inequality. Fourth, poverty is operationalized as infant mortality (IM),
the number of infant deaths per every 1,000 live births. Fifth, it is operationalized as
26


female illiteracy (F). And finally, poverty is operationalized as male illiteracy (M). In
brief, GNP, GDP, G, IM, F, and M (all measured on an annual basis) are the
dependent variables and measures of poverty.
Each of these poverty variables is measured as a distinct function of the
measures of globalization that include: foreign direct investment per capita (FDI),
trade as a percentage of GDP (trade), telephone lines per 1,000 people (telephones)
and Internet hosts per 10,000 people (Internet hosts). A detailed description of all of
the variables follows in the next chapter.
The first hypothesis is that globalization should positively affect GNP per
capita. This hypothesis reflects an orientation that follows from the market model.
As some of the current literature has suggested, global integration is beneficial to
poor nations as the introduction of trade, investment, and technology should make for
a more efficient and competitive environment (Romer, 1992; Lustig and Stem, 2000;
Dollar and Kraay, 2001; Masson, 2001). Furthermore, the heightened efficiency and
competition will lead to more political and social stability, economic expansion, the
creation of new jobs and higher incomes, and opportunity. By similar reasoning,
globalization should also positively affect the GDP real growth rate. Therefore, the
hypotheses that both GNP per capita and GDP real growth rates will rise is in
accordance with market theory.
27


The third hypothesis is that globalization should negatively affect the Gini
coefficient. In effect, the Gini coefficient should decrease relative to increases in
FDI, trade, the number of telephone lines per 1,000 people, and the number of
Internet hosts per 10,000 people. This predicted shift towards a more equitable
distribution of income is also informed by a market orientation. This suggests that
while the rich get richer, the poor also see considerable rises in income as they gain
the skills and education that globalization can bring with it (Dollar and Kraay, 2001).
Additionally, while inequality is very slow to change, it typically should follow a
pattern of increasing with the advent of integration, but will begin to decline over
time (Barro, 1999). In this manner, there should be a decreasing Gini coefficient over
time as global integration continues.
The fourth hypothesis is that globalization should negatively affect infant
mortality. In this respect, the mortality rates should decline as a function of
globalization. As a measure of health and as a proxy for poverty, infant mortality
rates will decrease with increased economic and technological expansion (Sachs,
2002). A healthy nation is more productive and foreign investors should have an
interest in augmenting the health of any nation in which they are investing.
Finally, the fifth and six hypotheses are that globalization will negatively
affect female and male illiteracy rates. As with the mortality rates, this indicates that
illiteracy rates should fall off as globalization moves forward. With the introduction
28


of the ideas and information disseminated through technological integration, a
population will begin to become more educated and innovative (Romer, 1992).
Additionally, the economic expansion that globalization is alleged to bring will move
governments to provide wider access to education for its citizens in order to make
them better competitors in the labor market.
The decline in female illiteracy is particularly expected because one of the
goals of development and poverty reduction is a move toward gender equity. Recent
studies have shown that women in certain areas of India and Bangladesh have begun
to desire more education and less children due to their increasing awareness of the
outside world via technology (United Nations, 2002).
As extracted from the theoretical literature, the interdependency of
globalization and poverty suggests that a model of six separate equations is
appropriate. Equations 1, 2, 3, 4, 5, and 6 form the model, where GNP, GDP, G, IM,
F, and M are dependent variables. Based on the afore mentioned hypotheses, each
equation shows the expected association (indicated by a + or sign) between the
dependent (poverty) and independent (globalization) variables. These equations are
operationalized as:
29


GNP = fh (+FDI, +trade, +telephones, +Intemet hosts); (Eq. 1)
GDP = fh (+FDI, +trade, +telephones, +Intemet hosts); (Eq. 2)
G = fh (-FDI, -trade, -telephones, -Internet hosts); (Eq. 3)
IM = fh (-FDI, -trade, -telephones, -Internet hosts); (Eq. 4)
F = fh (-FDI, -trade, -telephones, -Internet hosts); and (Eq. 5)
M = fh (-FDI, -trade, -telephones, -Internet hosts). (Eq. 6)
Globalization is expected to increase economic wealth, as in GNP and GDP; and
reduce other measures of poverty, as in G, IM, F, and M.
30


CHAPTER 5
DATA AND METHODOLOGY
The hypotheses were tested empirically with regression models of quantitative
secondary data. Ideally, the hypotheses are best tested by using data from 1990
through 2000. This time frame was chosen for several reasons: the early 1990s
marked the beginning of capital liberalization in many countries throughout the
world; the Berlin Wall fell in 1989 and the Soviet Union broke up in 1991, signifying
major changes in world history and a movement away from centrally planned
economies; while China began some smaller reforms in 1978, most of the nations
looked at herein began to embrace global integration in the 1990s; and finally, in the
early to mid-1990s the Internet and other telecommunications technologies began to
change the way people conduct both their personal and professional lives. However,
data limitations result in a complete set only for the years 1995 to 2000 since
technological data only began to appear in 1995.
The data came primarily from the World Development Indicators (WDI) that
is compiled annually by the World Bank.3 The WDI figures were found at the World
3 The World Bank, in conjunction with the International Monetary Fund, and the United Nations and
its agencies draw much of their data from country reports, periodic census inquiries, surveys, and
administrative files. Although considerable effort and care is put into collecting these data, care must
be taken in interpretation. Statistical systems and methods in developing countries are still weak and
the scope of national data and definitions differ widely. The data are drawn from what are believed to
be the most reliable sources, but they should be read only as indicating trends rather than offering
precise quantitative facts.
31


Bank website (at http://devdata.worldbank.Org/data-querv/~) for 1996 through 2000
and in the World Development Report for each year prior to 1996 (World Bank, 1980-
2002). The World Bank collected most of the data from member country statistical
publications, research institutes, and other international organizations such as the
IMF, the United Nations (UN), and its specialized agencies. The UN World
Economic and Social Survey 2001 was consulted (United Nations, 2001).
All of the telecommunications data came from the International
Telecommunications Union (ITU) Yearbook of Statistics (International
Telecommunications Union, 2002). Data for some years were not included in
isolated incidences, indicating that either there were none available or the World
Bank decided that what were available were too weak to provide reliable measures of
levels and trends.
Additionally, FDI and trade figures for the years 1995 through 2000 were
taken from the A.T. Kearney/Foreign Policy Magazine Globalization Index 2002
(Camegie Endowment for International Peace and A.T. Kearney, 2001-2002). The
data cited in the Globalization Index were compiled from International Financial
Statistics, an IMF publication, and were collected specifically to bring globalization
into sharper focus by assessing its most important components such as financial flows
and the movement of people, ideas, and information across borders.
32


Limitations of the Data
As mentioned previously, technological data, particularly on Internet hosts,
only began to appear in 1995. Ideally, a study that would cover at least ten years of
both technological and economic data on globalization. Furthermore, the timeframe
for this dataset does not allow for the inclusion of lag time in the regression analysis
since it only covers six years.
Additionally, the resulting R-squared values will be inflated due to the
inherently strong multi-collinearity between each countrys variables from one year to
the next. Again, a larger dataset that provides data for several more years would help
diminish this. If possible, a study that both qualitatively and quantitatively considers
each country individually over a longer time period would be helpful in the future.
Variables
Tables 5.1 and 5.2 below summarize each of the independent and dependent
variables, what each captures, how each is measured, and the source of data. WB
represents data from the World Bank and ITU represents the International
Telecommunications Union.
33


Table 5.1: Summary of Independent Variables
Variable Definition Measure Source
FDI Net inflow of foreign monies into a nation divided by midyear population. Millions of US$ per capita WB/A.T. Kearney
Trade Merchandise imports and exports divided by the current value of GDP in US$, after subtracting value added. Percent of GDP WB/A.T. Kearney
Telephone Lines Mainline and mobile line connections to the public switch network. # per every 1,000 people in a population ITU
Internet Hosts Computers directly connected to the World Wide Web. # per every 10,000 people in a population ITU
34


Table 5.2: Summary of Dependent Variables
Variable Definition Measure Source
GNP per capita (GNP) Total value added from domestic and foreign sources claimed by residents and divided by midyear population. Current US$ WB
GDP real growth rate (GDP) Change in gross value added by all producers in a nations economy. Percent (from constant price GDP in local currency) WB
Gini Coefficient (G) Extent to which income distribution among individuals and households in a particular economy deviates from perfect equality. Ratio, with 1 signifying perfect inequality and 0 signifying perfect equality WB
Infant Mortality (IM) Rate of deaths of babies one year old or younger. # per every 1,000 live births WB
Female (F) and Male (M) Illiteracy Inability of persons, 15 years of age and older, to understand, read, and write a simple statement about their life. Percent of population (gender specific) WB
As the tables show, globalization is operationalized by measurements of trade,
FDI, telephone lines per ever 1000 people, and Internet hosts per every 10,000 people
in a nation. Poverty is measured by GNP per capita, GDP real growth rates, Gini
coefficients, infant mortality rates, and female and male illiteracy rates.
35


FDIper capita is the net inflow of foreign monies into a nation divided by
midyear population. The net inflow of monies reflects investment that informs a
lasting management interest (10 percent or more of voting stock) in an enterprise
operating in an economy other than the investors homeland economy (IMF, 2000).
It is the sum of equity capital, re-investment of earnings, other long-term capital, and
short-term capital. Inherent in the notion of FDI is the process of removing
restrictions from international capital transactions related to the movement of capital
and the removal of controls on investments in the home country by foreigners
(Cobham, 2000). All FDI figures are given in terms of millions of current U.S.
dollars per capita.
Since openness to trade is difficult to quantify via the presence of tariff and
non-tariff barriers, this paper simply quantifies trade as a percentage of GDP. Trade
in goods as a share of GDP is the sum of merchandise exports and imports divided by
the current value of GDP in U.S. dollars after subtracting value added in services
(World Bank, 2001). Both FDI and trade help to quantify the economic aspect of
global integration.
Of the variables used to measure technological capabilities the first is the
number of telephone lines per every 1,000 people in a given nation. This figure
includes cellular lines if accounted for in the International Telecommunications
36


Union (ITU) survey.4 These data account for all lines that provide a person with
access to the public switched network.
Additionally, the number of Internet hosts per every 10,000 people is
considered. This gauges technological connectedness by counting the number of
hosts accessible to a population by which it can communicate and conduct business.
Internet hosts are the computers that are directly connected to the World Wide Web.
Several computer users can access the Web through one single host.
Given the above independent variables, the dependent variables analyzed in
considering a more holistic approach to poverty are gross national product (GNP) per
capita, gross domestic product (GDP) real growth rate, the Gini coefficient of income
distribution across nations (G), infant mortality per every 1,000 live births (IM), and
female (F) and male (M) illiteracy rates. Among the many possible dependent
variables to choose from when contemplating poverty these measures were chosen
because of their comprehensive nature and congruity with the UNDPs poverty-
reduction goals.
GNP is the broadest measure of national income and represents the total value
added from domestic and foreign sources claimed by residents. It comprises GDP
4 Since both the mainline and mobile line telephones connect people to a public switched network
allowing them to telephone anywhere in the world, both are counted here. Furthermore, in more rural
areas, mobile telephone towers may be a more efficient means of providing communities with
telephone service.
37


plus net receipts of primary income from non-resident sources.5 It is measured in
current U.S. dollars using the World Banks Atlas conversion method unless
otherwise noted. The Atlas method is a process of conversion that uses a three-year
average of exchange rates in order to compensate for fluctuations. GNP per capita
therefore, is GNP divided by midyear population, again converted into current U.S.
dollars.
The GDP real growth rate reflects the percentage change in the gross value
added by all producers, at purchaser prices, in a nations economy. It accounts for
taxes, but subtracts any subsidies in the value of the products. Value added
determines the net output of a sector after adding all outputs and subtracting inputs. It
is calculated from constant price GDP data in terms of the local currency converted to
U.S. dollars and is a good indicator of the growth of economic activity in a given
economy.
The Gini coefficient measures the extent to which income distribution among
individuals and households in a particular economy deviates from a state of perfect
equality. It is the ratio of the area between the perfect equality diagonal and the
Lorenz curve, which shows the actual quantitative relationship between the
percentage of income recipients and the percentage of the total income they received
5 Included in the World Development Report 2000/2001 was the change from Gross National Product
(GNP) to Gross National Income (GNP), these data have been standardized for the purposes of this
study and all fall under the GNP heading.
38


in a given year. A Gini coefficient of 1 indicates perfect inequality and a coefficient
of 0 indicates perfect equality.
Infant mortality refers to the number of infants who die before reaching the
age of one, expressed as a rate per every 1,000 live births per year. Age-specific
mortality data are very helpful not only in determining a countrys current health
status, but also in measuring a population's welfare and quality of life. These
numbers are generally estimates that are based on in-country surveys and censuses.
The female and male illiteracy rates reflect the percentage of persons, 15
years of age and older, who do not have the capacity to understand, read, and write a
simple statement about their quotidian life. This measure is a derivative of the
functional definition of illiteracy that considers a persons reading and writing skills
within the context of his or her immediate community. Like the mortality rates, these
data are derived from national censuses and surveys.
Data from four independent and six dependent variables, seven countries, and
a span of six years were gathered for this study. The seven countries (Bangladesh,
China, Ghana, India, Indonesia, Mexico, and Uganda) were chosen due to their
conflicting presences in the current literature. In some instances, these countries were
included in analyses that purported that globalization had lowered their poverty rates
and elevated their per capita growth rates (Dollar and Kraay, 2001; Masson, 2001;
Graham, 2000; Lustig and Stem, 2000). In other instances, these nations appeared to
39


support the claims of the apostles of the dark side of global integration
(Chossudovsky, 1998; Cobham, 2000). This analysis aims to make a more
comprehensive examination of what effect globalization truly has on these countries.
The analysis assumes a three-pronged approach. First, the descriptive
statistics are analyzed. Second, a case study of Indonesia is examined. And finally,
the six equations examining poverty as a function of globalization were regressed at a
confidence interval of ninety-five percent. The equations were run on Excel software
using OLS regression.
40


CHAPTER 6
RESULTS
Overall, the results suggest that globalization reduces poverty in these seven
countries. Two of the three economic measures of poverty used, GNP and GDP, rose
in relation to globalization and all of the social indicators, IM, F, and M, were
reduced in relation to globalization. These relationships enforce the idea that
integration and innovation can be beneficial to a nations development and indicate an
improvement in quality of life. The market model is supported, as the findings
suggest that globalization is associated with some economic and social
improvements. As suggested by both the descriptive and the model analyses,
poverty, as operationalized by GNP, GDP, IM, F, and M, has been reduced. The
market models claims that globalization helps to reduce poverty levels via increased
efficiency, competition, and opportunity brought about by openness, technology, and
trade hold true (Romer, 1992; Lustig and Stem, 2000; Dollar and Kraay, 2001;
Masson, 2001).
However, there is also evidence that globalization works to widen income
inequality, which is a finding that merits close attention by policymakers. While
correlation does not imply causality, the findings are significant enough for
policymakers to bear in mind when coming up with poverty reduction and
development strategies.
41


Even more important is that these findings emphasize the need to conduct
more comprehensive studies of both globalization and poverty. These results herald
the inconsistencies in the current literature and call for a broader look at the existing
variables. The sections below detail the empirical findings.
Descriptive
All of the dependent variables except the Gini coefficient experienced ample
change over the course of the past decade. Table 6.1 shows the percentage change in
each of the variables during this time.
Table 6.1: Percent Change in Dependent Variables, 1990-2000
Bangladesh Uganda Ghana China India Indonesia Mexico
GNP per capita 80.9 40.1 -10.3 127.0 31.4 0.0 263.2
GDP real growth rate 29.7 414.3 104.7 -22.3 15.4 -5.9 86.5
*Gini coefficient -9.2 -3.9 -3.5 6.6 18.1 15.1 13.1
Infant Mortality -30.5 -29.1 -23.5 6.9 -23.9 -29.5 -23.1
Female Illiteracy -10.3 -33.8 -24.5 -36.8 -16.7 -43.8 -26.7
*Male Illiteracy -26.2 -19.2 -16.7 -20.0 -8.6 -20.0 -46.2
Source: World Development Report, World Bank, 1990-2000. Based on the authors own
calculations.
*Years represented for the Gini calculation are 1992-2000 and for male illiteracy 1995-2000
42


Overall, the countries saw substantial growth in GNP and GDP over the past
ten years. Particularly impressive are the percent changes in Chinas and Mexicos
GNP per capita and Uganda and Ghanas increases in GDP real growth rates. These
preliminary findings suggest that globalization has contributed to economic
expansion and a reduction of poverty. As Todaro (1981) and the UNDP (2000)
outline in their development goals, higher incomes are necessary for poverty
reduction.
It is worth noting that Chinas negative GDP real growth rate reflects a change
from 10.3 percent in 1990 to 8 percent in 2000. This decrease is not surprising since
any economy would be hard pressed to keep up a real growth rate of 10.3 percent for
ten years. Furthermore, while the percentage increase in Chinas infant mortality is
6.9 percent, this percentage masks that infant mortality was relatively stable, only
increasing from 29 to 31 deaths per every 1,000 live births over the 1990 through
2000 period.
Indonesia is a peculiarity with a zero percent change reflected in GNP per
capita. It is a country that has had a formidable bout with globalization and is a good
case study for what can go right and what can go wrong if globalization is undertaken
without regard to building human capital, ownership, and institutions. It is discussed
in the next section.
43


The table also highlights rising inequality, particularly in China, India,
Indonesia, and Mexico. China, India, and Indonesia represent three of the most
populous nations in the world, suggesting that equality is more difficult to achieve in
nations with larger citizenries. Each of these nations has seen tremendous economic
growth in the past ten years, but each has also seen income equality decrease.
Bangladesh, Uganda, and Ghana all saw slight decreases in the Gini coefficient
during this time, indicating that income distribution became more equitable.
Every countrys decline in female and male illiteracy rates as well as infant
mortality rates (except for China which was addressed above) indicates that progress
has been made in improving education and health institutions. Such improvements
are integral in working to alleviate poverty levels in that they augment opportunity for
the people of developing nations.
Indonesia: A Special Case
It is worth noting that Indonesia experienced a dramatic decrease in FDI and
GNP per capita in 1997. This decrease was so severe that in 1998 and 1999 the FDI
numbers for Indonesia are negative. Furthermore, there is a stagnation of female and
male illiteracy rates as well as infant mortality rates during this time period. While in
1996, FDI was $6,194 million and GNP per capita was $1,110. These numbers are
44


just now beginning to rise again and, in 2000, were at $1,450 million and $570,
respectively.
It seemed that Indonesia and the other Asian tigers of the mid-1990s were
headed for economic success. By 1995, Indonesias economy was growing at over
eight percent and GNP per capita had nearly doubled since the beginning of the
1990s. Foreign investment was pouring in and high levels of optimism were abound.
There were offers of high returns on investments in these emerging markets, which
made them much more attractive to investors than the developed economies.
But the Asian tigers quickly experienced the Asian crisis that began in
Thailand in 1996 as the country began to default on a growing number of its loans. In
return, foreign investors and banks quickly began to pull out billions of dollars in a
massive liquidity crisis and an attempt to avoid severe economic recession (Baily,
Farrell, and Lund, 2000). These outflows that began in Thailand rapidly spread to the
surrounding Asian tigers. Indonesia was one of the hardest hit and Southeast Asia
experienced an economic collapse in 1997 from which its nations have been trying to
recover ever since.
Since the crisis, most of the Southeast Asian countries, including Indonesia,
have been trying to stimulate the economy by encouraging domestic consumption to
support domestic production, but this is simply not enough to support the production
45


needed to keep the countries moving forward and catch up with the rest of the
globalizing nations (Rooney, 2001).
While it is still trying to attract FDI, Indonesia is having difficulties due to the
precariousness of its political and financial structures. Massive job losses occurred as
a consequence of the crisis, resulting in a three-fold increase in unemployment, which
exacerbated existing poverty and created new poor. It has only recently and very
reluctantly began to accept help from the IMF and private sector. Political, and social
reform have been lagging considerably since the crisis. More recently, there have
been socio-cultural uprisings in the nation, threatening peace and therefore making
any proactive measures for reform or institutional change immediately unlikely. This
lack of political and social stability has made China and India, nearby but more
stable, more attractive to inflows of FDI (Rooney, 2001).
Indonesia now faces a multitude of problems that it had not anticipated prior
to the financial crisis. No social safety nets were in place for the millions of newly
unemployed after the crisis and hence, social and political stability has been
imperiled, severely hindering the prospects for any quick recovery (Eddy, 1999).
With some sort of regulation and social protection infrastructure Indonesia may not
have had to experience the doldrums that it now does.
46


Model Results
The following six tables present the results of the six equations, run using
standard multiple OLS regression. Thirty-one cases were used in each equation with
any missing values attributed to a lack of data. The model reveals some significant
and explanatory relationships among the variables. The general implications of the
results in the six tables suggest that the components of global integration and poverty
are connected. The results also indicate that globalization does help to reduce poverty
levels though not necessarily in the ways and to the extent that previous studies and
this studys hypotheses have alleged.
The adjusted R-squared values for GNP, GDP, G, IM, F, and M are .958,
.582, .710, .762, .757, and .610 respectively. The adjusted R-squared values were
high enough in many cases to safely assume that there is a relationship between
globalization and poverty. The relationship enforces the idea that integration and
innovation can be beneficial to a nations socio-economic development.
The R-squared values, however, should be regarded with caution as there is
implicitly a high degree of correlation between the variables for any one country from
one year to the next. Nonetheless, they exhibit a relationship. A detailed
examination of the equation results follows the tables.
47


Table 6.2
Results of Equation 1
Gross National Product Per Capita
Dependent Variable Gross National Product per capita, GNP
F-value 174.06
Independent Variables Parameters T-score Probability
Constant -44.9013 -0.3261 0.7469
FDI 27.7823 10.8290 <0.0001
Trade 7.7709 2.7269 0.0113
Telephones per 1000 -4.0236 -1.3580 0.1861
Internet Hosts 23.7913 3.6982 0.0010
R-squared 0.964
Adjusted R-squared 0.958
Table 6.3
Results of Equation 2
Gross Domestic Product Real Growth Rate
Dependent Variable Gross Domestic Product Real Growth Rate, GDP
F-value 11.4734
Independent Variables Parameters T-score Probability
Constant 11.4362 9.5022 <0.0001
FDI 0.0391 1.7442 0.0929
Trade -0.1606 -6.4469 <0.0001
Telephones per 1000 0.0258 0.9949 0.3289
Internet Hosts -0.0572 -1.0170 0.3185
R-squared 0.638
Adjusted R-squared 0.5827
48


Table 6.4
Results of Equation 3
Gini Coefficient (Income Inequality)
Dependent Variable Gini Coefficient, G
F-value 19.3664
Independent Variables Parameters T-score Probability
Constant 31.9921 16.3602 <0.0001
FDI 0.1043 2.8634 0.0082
Trade 0.0268 0.6619 0.5138
Telephones per 1000 0.0413 0.9813 0.3355
Internet Hosts 0.0134 0.1462 0.8849
R-squared 0.749
Adjusted R-squared 0.710
Table 6.5
Results of Equation 4
Infant Mortality
Dependent Variable Infant Mortality, IM
F-value 25.0065
Independent Variables Parameters T-score Probability
Constant 90.5290 16.2613 <0.0001
FDI 0.2116 2.0400 0.0516
Trade -0.3000 -2.6033 0.0151
Telephones per 1000 -0.7229 -6.0339 <0.0001
Internet Hosts 0.5193 1.9961 0.0565
R-squared 0.794
Adjusted R-squared 0.762
49


Table 6.6
Results of Equation 5
Female Illiteracy
Dependent Variable Female Illiteracy, F
F-value 24.4161
Independent Variables Parameters T-score Probability
Constant 75.7044 14.9013 <0.0001
FDI -0.0274 -0.2898 0.7742
Trade -0.5207 -4.9517 <0.0001
Telephones per 1000 -0.3294 -3.0128 0.0057
Internet Hosts 0.3592 1.5129 0.1423
R-squared 0.790
Adjusted R-squared 0.757
Table 6.7
Results of Equation 6
Male Illiteracy
Dependent Variable Male Illiteracy, M
F-value 12.7196
Independent Variables Parameters T-score Probability
Constant 46.4073 10.0416 <0.0001
FDI 0.0458 0.5323 0.5990
Trade -0.3264 -3.4119 0.0021
Telephones per 1000 -0.2978 -2.9941 0.0060
Internet Hosts 0.3207 1.4848 0.1496
R-squared 0.662
Adjusted R-squared 0.610
50


The results of equation 1 indicate that both FDI, trade, and Internet hosts all
have a significantly positive relationship to GNP per capita (p-values of <0.0001,
0.013, and 0.001, respectively). This supports the first hypothesis that globalization
will positively affect GNP per capita. Furthermore, these results concur with the
market model. The increase in efficiency and competition expected from openness,
investment, and technology materializes as higher per capita GNP in this case. This
association also supports the literature that credits the spread of technology with a rise
in living standards (Micklethwait and Woolridge, 2001). Wider access to the Internet
fosters broader access to myriad knowledge and ideas. As Romer (1992) claims, the
poor nations suffer from a lack of ideas and access to the Internet can certainly help
foster ideas and disseminate a wealth of information and innovation.
The results of equation 2 are mixed. Both FDI and trade have significant
effects on GDP, but FDI has a positive association, while trade has a negative
association. This indicates that globalization as operationalized by FDI is congruous
to market theory in increasing growth rates (Dollar and Kraay, 2001). On the other
hand, globalization as operationalized by trade runs contrary to the claim that
increased participation in international trade and investment can be linked to higher
growth.
These results only partially support the second hypothesis made in this study.
Important to remember, despite this strong correlation, is that growth does slow over
51


time. Each of these countries is among the globalizing and therefore has seen
sustained growth over the past ten years, with a slight drop off in the levels of growth
in the past few years. None of the other globalization variables show any significant
relationship to GDP growth.
The results of the third equation indicate that FDI has a significantly positive
relationship to the Gini coefficient (p-value 0.0082). This does not support the third
hypothesis, but does support the descriptive findings that indicate a widening of the
income inequality gap across China, India, and Indonesia over the past ten years.
Additionally, these findings support previous literature that finds that global
integration helps the rich get richer and the poor get poorer (Weisbrot, Baker, Kraev,
and Chen, 2000; Seabrook, 2001; Weller, Scott, and Hersh, 2001).
In consideration of widening inequality, it is important to remember that this
study does not account for lag time. As Barro (1999) found, inequality at first rises,
then begins to decrease over time with development. Furthermore, the countries
found to have widening inequality in the descriptive analysis (China, India, and
Indonesia) are all highly populated nations. This indicates that the Gini coefficient
might be driven by large nations that dominate the results. The descriptive evidence
suggests that inequality is rising in these large countries, but falling in the smaller
nations (Ghana and Uganda). Further research should be done to look at the
52


particular countries in which the Gini is rising and perhaps the domestic policies and
regime types of those countries.
The results of equation 4 are mixed. Both trade and the number of telephone
lines have a significantly negative association to infant mortality (with p-values of
0.0150 and <0.0001), while FDI and Internet hosts have a significantly positive
association (with p-values of 0.0516 and 0.0565). The negative associations indicate
that globalization as operationalized by trade and telephones helps reduce mortality
rates. This is in accordance with the fourth hypothesis. Such a decline in infant
mortality speaks to the advances in health care services in these countries that can
accompany globalization. Providing a healthy environment should be one of the first
steps in eliminating poverty and helping a country develop (Todaro, 1981;
Brundtland, 1999; Sachs, 2002).
The positive association that FDI and Internet hosts has with infant mortality
rates is slightly less significant. Important to remember with these associations is the
lack of lag time in this study because of the short time frame used for the data.
Globalization as operationalized by FDI and Internet hosts could eventually have a
negative association with infant mortality rates as money invested in a nation takes
time to produce tangible results. This notion is underscored by the results of the
descriptive analysis that show decreasing infant mortality rates overall.
53


The results of equation 5 suggest that globalization has a significantly
negative relationship to female illiteracy. Trade and telephone lines provide the
strongest support for these results (p-values of <0.0001 and 0.0057, respectively). As
with the infant mortality rates, the negative association suggests a decline in illiteracy
rates and thereby a improvement in the quality of life for people. These results
concur with the hypothesis and support the market model. Open markets should
make things more efficient via increased competition and more opportunity.
Opportunity should translate into increased access to education. An increasingly
more literate female population lends support to the notion that there is wider access
to education. Additionally, a marked improvement in female illiteracy contributes to
the empowerment of women that can eventually free them from the cycle of poverty
(Buvinic, 1997).
Finally, the results of equation 6 are very similar to those of equation 5.
Globalization also has a significantly negative relationship to male illiteracy. Again,
trade and telephones lines present the strongest associations (p-values of 0.0021 and
0.005, respectively). By similar reasoning, the market model holds true here and the
hypothesis is supported.
It should be noted that the marginal effect of trade on reducing female
illiteracy rates is greater than the marginal effect of trade on reducing male illiteracy
rates. The same is true for the marginal effect of the number of telephone lines per
54


1,000 people. While this may not be surprising given that a greater percentage of
females are illiterate, it does suggest that women are gaining greater access to
education than they ever have before.
In summary, the model results indicate that rising levels of GNP per capita
and GDP coupled with decreasing levels of infant mortality and illiteracy are
promising and pave the way for achieving Todaros (1981) development goals. The
findings indicate that globalization has resulted in higher incomes and increased
literacy (and subsequently more economic and social choice). The results also
indicate that health is significantly improved despite the mixed results of the
regression analysis. The combination of these improvements can allow a country to
make the difficult move from a developing to a developed nation. The findings
suggest that foreign investment and technological advances can bring countries into
the fold of the global economy and provide them with more resources to invest in
human capital and institutions. As both Todaro (1981) and Romer (1992) recognized,
the development of human capital and ideas is one of the cornerstones for decreasing
poverty throughout the world.
Despite the above optimistic results, the problem of rising income inequality
remains. The Gini coefficient findings contradict the market model and since this
study does not allow for lag time, Barros theory (1999) of initially rising and then
falling inequality is not tested. Widening inequality falls short of an integral part of
55


Todaro (1981) and the UNDPs (2000) development goals that call for more equitable
income distribution in addition to the many improvements mentioned above.
56


CHAPTER 7
RECOMMENDATIONS AND CONCLUSIONS
The rise of global integration has only added to the complexity of the
international system and leaves the countries of the world teetering between
intermingling states of instability and prosperity. Economic and political
development arrangements are out of synch as they stand right now and in creating
not only a more welcoming and equitable discussion on globalization, but also
bettering functioning systems of governance and social services provision in
developing countries, synchronicity can be more easily attained. The ubiquity of
FDI, trade, and technology (or at least the push for their ubiquity) amounts to a
growing need for corporations, governments, and citizens to address and to
understand the possible effects (both positive and negative) of such integration.
The model results underscore the fact that globalization can be very helpful in
fighting poverty. Rising GNP per capita and GDP real growth rates as well as
decreasing mortality and illiteracy rates work to improve the quality of life for the
poor by way of higher incomes and increased opportunity. Furthermore, these results
are compatible with both market and development theory.
The improvements in education and health that have been propelled by global
integration must be lauded and continued. Developing and developed countries alike
need to invest in the health and education of the worlds poor. As the door to
57


education opens to more people, the relative income advantage of the skilled worker
over the unskilled worker will decline over time (Birdsall, 1998). Education could
ultimately work to decrease the problematic income gap.
Even before education, however, health should be addressed. Ill health and
disease are the causes of so much poverty and suffering (Brundtland, 1999; Sachs,
2002). Investing in the health of a nation is tantamount to investing in the human
capital of the nation, which is good news for both the population itself and foreign
investors.
An anecdote from Uganda underscores the notion that globalization is helpful
in reducing poverty. Recent government initiatives to boost the economy and the
quality of life of its people via foreign investment and the liberalization of the
telecommunications market is beginning to pay off. From 1995 to 2000, Uganda
created the regulatory Uganda Communications Commission, licensed a private
mobile telephone operator, and introduced competition to the incumbent
telecommunications operator (ITU, 2000). Uganda has since seen increases in the
efficiency of its telecommunications service delivery, the creation of new jobs, and an
increasingly more skilled workforce.
Despite the multitude of positive results however, rising income inequality in
the face of globalization must be addressed. A widening income gap between the rich
and the poor will impede development no matter now much progress is made in the
58


other areas. As the descriptive results showed, Ghana, Bangladesh, and Uganda all
saw a slight reduction in the Gini coefficient over the past ten years. With only a
fraction of the population that countries like India and China have, the wealth that has
been created by globalization in Ghana and Uganda has been spread more evenly
across the population. The remaining cases of China, India, Indonesia, and Mexico,
however, incriminate globalization as at least one factor that increases inequality.
These results suggest that the Gini coefficients rise could be driven by the
larger nations (China, India, and Indonesia), which therefore would have dominated
the regression results. Further research should look at each country individually and
over a longer period of time in order to discover where and why inequality is
increasing.
Under the auspices of the market model, the problem of inequality should be
addressed with the introduction of social protection measures in developing countries.
By nature, the only consistency of the market is its inconsistency, as it is often ruled
by investor emotion and uncertainty. Nevertheless, it is a system that can provide
opportunity if treated with a modicum of discretion. Social safety nets should be
created to address the inequality gap and the markets effect on it. Among the
countries examined in this study, the uncertainty of markets is personified best in the
case of Indonesia, which was the country that saw the greatest market fluctuations in
the course if its development attempts.
59


The case of Indonesia highlights the need to prepare for market fluctuation
and address growing inequality by way of redistributive policies and social safety
nets. Although Indonesia opened its markets and saw magnificent amounts of FDI
pouring in, the Asian financial crisis of 1997 proved ruinous and millions of
Indonesians lost their jobs. Without any social protection measures, the gap between
the rich and the poor began to increase rapidly and has since created a seemingly
impassable amount of political and social instability. Now, Indonesia is having
problems attracting foreign investment and has been forced to re-evaluate its
distributive policies and institutions. If social safety nets had been implemented
along with market reforms, the inequality gap in Indonesia might not have become as
large and stability might have been preserved.
Developing countries must consider social safety nets and institution building
in addition to open markets and investment. Social protection and safety nets can be
the foundations for political and cultural stability within nations. Such stability will
make the countries more attractive to possible investors and thereby open the door to
innovation, technology, and perhaps a way out of poverty. By the same logic, foreign
investors have every reason to collaborate with the national governments in which
they are investing. The investors can contribute to locally defined safety nets in order
to help equalize imminent growth. Since making the move from developing to
developed is such a difficult and slow process (Todaro, 1981), policies that are
60


redistributive in nature should be examined (UNDP, 2000) in order to ensure an
improvement in quality of life for all people.
This slow pace of change muddles the situation of inequality even more. The
results may indicate that rising inequality means that the new economic incentives
being introduced by globalization are creating new opportunities that some
individuals have taken to excel and profit from while others have not (Birdsall, 1998).
Hence, the desire to take ownership of the opportunities may play a role in the
inequality scenario. Or the findings may exhibit the first part of Barros (1999)
theory that inequality at first rises and then declines. As the regression analysis only
covered six years of data, the lack of lag time may have excluded the possibility of a
decline in inequality over time. Either way, more examination of the inequality
phenomenon should be undertaken.
As Nancy Birdsall pointed out in her 1998 article about inequality, bad policy
also includes what governments fail to do, such as the failure to invest in the
education or skills of the poor (Birdsall, 1998). The poor need access to opportunity
and then they can begin to help themselves out of poverty and perhaps even decrease
inequality. This sort of investment should concentrate on programs that have the
potential to reach everyone, but benefit the poor the most because they need the most.
Interestingly, both those in favor of and those against globalization
acknowledge that unregulated capital flows and a lack of good governance will hinder
61


the process of poverty reduction in nations trying to integrate. The difference is that
the one side presents the argument that while the worlds poor may stand to benefit
from global integration, they cannot do so without solid institutions and planning
(Weller, Scott, and Hersh, 2001). The other side uses virtually the same words, but
only reverses their order by claiming that global integration is good for the worlds
poor as long as there are complementary social and institutional reforms to enhance
its effects (Dollar and Kraay, 2001). As Rodrik (2000) iterates, no country has
developed successfully by closing its borders to trade and foreign investment.
That said, globalization requires the inclusion of structural and social
adjustments to ensure the longevity of the people. Understanding the links between
inequality and the performance of an economy under the vehicle of global integration
should become an integral part of understanding the modem process of development
and the effects of different policies. Both Todaro (1981) and the UNDP (2000)
underscore the importance of equitable income distribution to poverty reduction and
it cannot be ignored.
There should also be some amalgamation of the many methods used by
practitioners to measure poverty and globalization. Attention needs to be drawn to a
standard determination of quantifiable variables in order to focus on policymaking
and action instead of rhetorical debate. The analyses as they now exist cannot guide
policy decisions until they take a more complete view of poverty and its
62


multidimensional nature. Poverty is not living on less than one dollar a day, nor is it
having a low life expectancy or high infant mortality rates. Instead, it is all inclusive
of these things and its separate components should be addressed individually. This
method will provide more sustainable development results and contribute to
progressive policy for poverty reduction.
By way of the Millennium Development Goals, the UNDP and the World
Bank (2000) have taken a step in the right direction in recognizing the
multidimensionality of poverty. These goals are consistent with Todaros goals and
address the copious needs of developing countries. Their agenda includes assessing
social indicators for health, education, and access to services as well as the
development of new factors that as of yet have been unmeasured such as risk, social
exclusion, and access to social capital. The inclusion of all of these will create a more
comprehensive understanding of poverty and allow for more comprehensive
measures to be taken to fight it.
Furthermore, as more data are collected on technological innovation and
telecommunications, they should be strongly considered in its correlation to variables
such as GNP per capita, GDP real growth rate, illiteracy rates, and infant mortality
rates. As the results of this study show, technology often has a strong association to
the dependent variables of poverty. Access to the Internet, land telephone lines, and
cellular phones could have the potential to help create a better-educated and more
63


creative citizenry and foster new ideas. Undoubtedly, the results of this study would
be drastically different if carried out again in another five years. With the inclusion
of more technological data one might discover globalization to be an even stronger
positive force in the fight to reduce poverty levels.
It is clear that there are some promising associations (a more literate
population, lower infant mortality rates, higher GNP and GDP) as well as some
distressing ones (income inequality) about the components of global integration.
Through all of these results, the conclusion is that integration can have positive
results and help attack the factors at the roots of poverty, but in introducing
developing nations to the global economy, serious consideration must be undertaken
in each case in regard to institutions, social infrastructure and protection, and the
needs of the population.
Therefore, policies should not be made according to general assumptions
about what trade, FDI, and technology do; they should be made according to what
these things do in each particular instance. In order to this, further research should be
done. A study similar to this one should be undertaken as more technological data
become available. A larger dataset will allow for the inclusion of a lag period in the
results. In this instance, the findings on inequality may turn out differently as Barros
(1999) theory could come to fruition.
64


Additionally, looking at each country individually within the freedom of a
larger dataset would be helpful. This could allow for consideration of regime and
social policy in determining what other factors could have an effect on inequality and
poverty. This would also allow the researcher to distinguish between the larger and
small countries to determine how population affects inequality.
Finally, an exploration of who the poor are needs to be done. This should
include an evaluation of the constraints they face (for example, do they have access to
financial and social capital?) and the needs they have. Such a targeted study will
allow for a more tailored approach to improving their quality of life.
There is no one size fits all solution to the problem of poverty in the world;
rather, there is a multitude of solutions that should target each factor thereby
committing to more sustainable resolution. Policymakers must look at the facts -
women and children are the most affected by poverty; FDI and trade can help; access
to education, health, and sanitation services improves the quality of life and
opportunity for the poor and use them in conjunction with the goals of development
and poverty reduction. Openness alone does not make an economy and social system
prosperous, but it does help. Complementary reforms must be implemented in
tandem with the market and technological reforms and then subsequently poverty
levels are reduced because growth can be helpful in alleviating some of the
dimensions involved with poverty.
65


In this respect, global integration is not at all a substitute for development
strategy (Rodrik, 2001), but instead a useful tool to complement it. With the
combination of the many factors that development and globalization entail, the poor
nations can exploit the technology and capital that integration may bring and combine
them with their domestic institutional innovations to ensure a better life for their
people. It is not an easy road to reduce poverty, for it will involve the time, thoughts,
and work of many, but it is one that can and must be taken, in each individual country
that is affected by poverty.
66


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