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“Globalization and Rural Poverty” Bardhan 2004

Summary:

Pranab Bardhan, Professor of Economics at UC Berkeley, explores in this paper the effects that globalization has had on the lives of the rural poor in low-income countries. Bardhan poses the question of how international market structures will ultimately affect the absolute poverty levels for those who live in these rural sectors. He offers supporting evidence for both sides of the globalization debate and insightfully weaves the two together through current events and statistics.

He uses the concepts of trade liberation, export commodity concentration, and comparative advantage to illustrate the impact of globalization on rural poverty.

The Debate:

Bardhan focuses on absolute poverty levels of agricultural and non-agricultural rural sectors in low-income countries and examines the poverty lines of various countries as he introduces the concept of trade liberalization, or free trade. Although rapidly industrializing economies such as China, India, and other Asian countries have seen a large decline in poverty over the last few decades, which many pro-globalization defendants argue, he does not attribute the phenomenon all to globalization. He uses the 1998 post-flood food crisis in Bangladesh as an example. On the one hand, trade liberalization may have helped mitigate the crisis; by introducing private imports, prices on food and commodities were stabilized overall. On the other hand, this caused an end to domestic marketing arrangements and increased the variance of prices. Bardhan questions the outcome of the Bangladesh post-flood food crisis and focuses on those who live in poverty in this country – at what capacity are the poor able to ultimately cope with negative price and income shocks?

This question leads Bardhan to address the notion of the commodity concentration of exports, where countries focus on only a few specialized commodities to export. More than 50 developing countries depend on 3 or fewer primary commodities for more than half of their export. Bardhan points out that exports of such products are often a “curse as well as a blessing for these countries,” (p. 9) because the prices on these exports tend to fluctuate unpredictably and the economy becomes too dependent on them.

Trade liberalization and the commodity concentration of exports leads Bardhan to address the concept of comparative advantage, where countries focus on specific commodities and trade with one another for efficiency. Bardhan expresses the pros and cons to comparative advantage in the global sense. As low-income economies open up and export specialized crops, new opportunities are created that may potentially lift those producing the commodities from poverty. Other crops that the country may lack in comparative advantage, however, will lose out and push the small producers into poverty, assuming that there are no extensive programs of public assistance and services to help these producers reallocate their resources.

Often times the impoverished farmers of traditional crops are ill-equipped to shift by themselves to the new commercial products like fruits, processed foods, etc. Because these products require new storage and transport infrastructures as well as new legal rules, costs would be too high for rural farmers to meet. Bardhan fears that an increasing global network of industrial agri-business will lead to the exploitation of small, rural producers by large corporate marketing chains.

Pranab Bardhan (2004): “Globalization and Rural Poverty” World Institute for Development Economics Research of the United nations University. Helsinki, Finland.

Globalization and Rural Poverty Full Report

Summary by Ellen Liang