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“Channels and Policy Debate in the Globalization-Inequality-Poverty Nexus” Nissanke and Thorbecke 2006

This is a wide-ranging review of the literature on global integration, inequality and poverty. It’s great contribution is to specify, and summarize findings on, the different causal links (channels) connecting globalization, poverty and inequality. The paper explores the indirect effects of openness (on growth, inequality, poverty and pro-poor growth), and the direct effects of changing prices, mobility of capital and labor, technological progress and financial volatility, on poverty and inequality.

In section 2, the paper usefully distinguishes different concepts of world income inequality:

1. difference in mean incomes between countries (which continues to diverge)

2. mean national incomes weighted by population (recently converging, but driven by China)

3. interpersonal inequality (rising till 1990s, then falling marginally)

4. vertical (between individuals at different levels of income pyramid) and horizontal (inequality within classes).

The main findings on the effect of global integration on poverty and inequality are these:

i. trade openness generally raises growth but that connection is not universal.

ii. The jury is still out on how growth influences inequality

iii. Opening of trade can effect poor people directly through price changes.

iv. In the 1870-1914 wave of global integration, large scale migration reduced the income gap between rich and poor nations. During the contemporary wave, both labor migration and capital movements have been more constrained. The benefits to capital have been larger than those to labor.

v. Diffusion of technology may widen wage and employment gaps between skilled/semi-skilled and unskilled labor.

Global integration is associated with greater economic and financial volatility, which affects the poorest households most significantly.

In a concluding section on empirical evidence and the policy debate about globalization, inequality and poverty, the authors find there is little evidence of convergence between rich and poor economies. They deduce that globalization can produce winners and losers. A. strategic engagement with globalization can be used to create high skill and high productigvity activities. Passive liberalization, on the other hand may lead to marginalization.

Nissanke and Thorbecke (2006). “Channels and Policy Debate in the Globalization-Inequality-Poverty Nexus.” World Development 34(8): 1338-60.

Summary by Ben Crow