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Globalization Impacts on the Poor and Inequality - Research Paper Example

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The paper "Globalization Impacts on the Poor and Inequality" discusses that to reduce poverty, countries should develop their export and incoming foreign investments. Such policies allow maintaining employment and wage levels even at times of economic difficulty…
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Globalization Impacts on the Poor and Inequality
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Download file to see previous pages While trade models suggest different predictions about the distribution of the gains from free trade, all of them suggest that these gains will not be distributed equally within an economy. However, while trade benefits gain to economy as a whole, the economic situation of the whole population may improve if supported with adequate domestic policies. Nevertheless, the impact of economic globalization and free trade on inequality has received much attention in empirical trade literature.

The World Bank examines several ways in which globalization affects inequality (Dinello & Squire, 2005). First, while globalization resulted in a decreased inequality between OECD member countries, inequality increased in some countries due to domestic policies. Moreover, there was a decline in overall economic inequity for both OCED countries and the new globalizers. However, the increased inequality in China, the population of which comprises one-third of the whole population of the new globalizers, has contributed to a significant increase in inequality in these countries (2.93% in Central/Eastern Europe and CIS, see table 4). Finally, while in general openness for trade does not affect inequality, in developing countries it is associated with greater inequality.

The impact of free trade on income distribution is also dependent on the country initial income levels. In low-income countries the rich benefit from trade reforms, which contributes to an increase in inequality. However, as in the cases of Chile, Colombia, and the Czech Republic, the rise of income level results in a relative increase of income of the poor and the middle class when compared with the reach. Thus, even though trade reform initially leads to inequality, finally it contributes to more equality within an economy (WTO, 2008).
The Gini coefficient (Table 4) is a measure of statistical dispersion, defined as a ratio with values between 0 and 1, which gives complex information on the entire income distribution of households within an economy. ...Download file to see next pagesRead More
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