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Ch 1 - Introduction
- W.E. Upjohn Institute
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1 1 Introduction Sisay Asefa Western Michigan University This collection is based on the papers presented at the 2007–2008 Werner Sichel Lecture-Seminar series held at Western Michigan University . These papers address the issue of globalization with a special emphasis on its impact on poverty. The dawning of the twenty-first century is a propitious time to examine this issue. Advances in transportation and, especially, telecommunications have imposed virtual synchronicity on nations. Information and communication flows are virtually instantaneous. However, wide differences in cultures, political systems, languages, and ethnicities impose barriers to optimal use of the technological advances that have occurred. Extreme variation in the international distributions of wealth, income, and poverty remain as enormous social problems to be addressed. The general perspective of the economists who have contributed to this collection of papers is that expanding “flows” between countries is the appropriate direction for economies both in terms of accelerating growth and reducing inequalities. These flows include international trade and capital, migration, remittances, and foreign aid. But in addition to these hard commodities and dollars, there are flows of ideas, knowledge, and technical assistance. Of course, as one of the authors reminds us, appropriate intellectual property rights need to be enforced concomitantly with the flow of ideas and knowledge. The book begins with the chapter by Ian Goldin and Kenneth A. Reinert, who explore how globalization in the structure of trade and capital flows in its various forms (foreign direct investment, portfolio investment, and commercial bank lending) affect poverty. They also discuss the effect of foreign aid, international migration, and remittances , including the global flow of ideas in the form of knowledge and information. 2 Asefa Goldin and Reinert offer a historical view of globalization and describe three distinct stages of modern globalization, the first of which dates back to approximately 1870. In discussing the historical relationship among these three stages, they note that globalization and global poverty can be either positively or negatively related to each other. From 1870 to 1929 and the beginning of the Great Depression, globalization and global poverty increased together. However, the retreat from globalization during the Great Depression and World War II was accompanied by a continued increase in global poverty. A key public policy challenge facing humankind, they say, is to eliminate this stillprominent level of extreme poverty. Goldin and Reinert write that while globalization has the potential to be a vehicle for shared growth, prosperity, and reductions in poverty , that potential is not yet being adequately realized. They conclude their chapter with several recommendations to improve the effects of globalization. Chapter 3 by Susan Pozo emphasizes that globalization through migration is a powerful global force with potential benefits for individuals and community out-migrants. Pozo discusses the role of current remittances and how these forms of capital inflows to developing countries have the potential to reduce sudden stops or shocks. In other words, countries that experience large inflows of remittances appear less vulnerable to economic recessions from sudden withdrawal of capital , assuming these inflows are motivated by altruism. Altruism inflows to developing countries are countercyclical, reducing the damage that foreign investors may impart when they perceive sudden shock in poor performance and withdraw financial resources. Pozo reminds us that free flows of capital where it is abundant should earn low returns to areas where it is abundant and earn higher returns where it scarce, as in developing countries. Globalization driven both by trade and capital flows generally leads to a positive sum outcome , and not a zero sum game. The same idea is true for migration, which involves the flow of human capital. She concludes by arguing that despite political impediments to labor migration, migration and other forms of globalization driven by technical changes, trade, and capital flows are likely to lead to growth of the world economy with the potential to reduce global poverty. [3.88.211.227] Project MUSE (2024-03-29 10:23 GMT) Introduction 3 Chapter 4 by Joseph Joyce explores the impact of globalization on income and wealth inequality. Joyce reviews the evidence on the determinants of disparities in per capita income with a focus on the institutions that affect globalization. He implies that globalization can be better managed to benefit the poor. The United States and other industrial countries have a major responsibility to help promote globalization with a human face. In particular, the greatest challenge of global poverty and inequality exists in Africa and the Middle East in the coming century, with symptoms...