Journal of Policy Modeling26 (2004) 421–424

Editorial

Globalization, growth and poverty:editor’s introduction

This Special Issue of theJournal of Policy Modeling on “Globalization, Growthand Poverty” arose out of the Session that I organized at the Annual Meeting of theAmerican Economic Association (AEA) held in San Diego on January 4, 2004,but it also includes other papers that were not presented at the Meeting.

Globalization is a revolution, which in scope and significance is comparableto the industrial revolution, but while the industrial revolution took place over acentury or so, the Globalization Revolution has taken place under our very eyes inone or two decades and is continuing unabated. We have globalization in tastes,which is leading to products becoming more and more global in nature, and wehave globalization in production and labor markets, which is leading to increasingoutsourcing of parts, components, and services.

This Special Issue addresses four basic questions. (1) How rapidly is globaliza-tion proceeding and what is its relationship to trade protectionism? (2) Why doesglobalization give rise to such heated controversy? (3) Has globalization led to in-creased growth and where? (4) Has globalization reduced poverty and where? Thepurpose of this Special Issue is to have the current views of some of the world’sleading experts on these important issues.

Two general conclusions seem to emerge from the papers in this Special Issue.These are that globalization has led to (1) the rapid growth of globalizers (thosecountries that are open to international trade and finance) but not to countries thatdid not globalize and (2) a reduction in the number of poor people (those who liveon less than one dollar a day) in Asia, but not in other parts of the world.

In the first paper in this Special Issue “Globalization: Prospects, Promise andProblems,” Ralph Gomory and William Baumol, point out that although economistshave tended for the most part to view globalization as a basically benign phe-nomenon, it may have extremely painful consequences on some groups of peopleand some nations (including advanced ones) may suffer economic damage. In-creased competitive pressures resulting from globalization can, nevertheless, en-hance innovation and growth and thus can end up actually benefiting every nationin the long run.

0161-8938/$ – see front matter © 2004 Society for Policy Modeling.doi:10.1016/j.jpolmod.2004.04.001

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In his paper “Anti-Globalization: Why?,” Jagdish Bhagwati points out that thereare two main groups of critics of globalization. Hard-core protesters have such adeep-seated antipathy to globalization based on a combination of anti-capitalist,anti-corporation, anti-immigration and anti-Americanism that it is impossible toenter into a useful dialogue with them. Then there are those who regard economicglobalization as the cause of many social ills of today, such as poverty in poor coun-tries and deterioration of the environment worldwide. These latter critics requirecareful response and demonstration that globalization advances rather than setsback various desirable social causes, such as gender equality and the reduction ofpoverty and that globalization, as such, did cause the financial crises in SoutheastAsia but was in fact at the heart of the “Asian miracle.”

In his “Globalization and Growth in Emerging Markets,” Joseph Stiglitz statesthat those developing countries that have managed the globalization process wellhave received major benefits in the form of much more rapid economic growth.More commonly than not, however, under the auspices of the IMF, globalizationhas not been well managed and may have adversely affected growth and evenincreased poverty in some countries. The author identifies eight channels throughwhich these adverse effects can take place. One of the most important is the in-creased risk that developing countries are likely to face from mismanaged global-ization, and higher risks can have adverse effects on growth. The lesson that Stiglitzdraws from his analysis is not that nations should walk away from globalization,but that they should be aware of the downside and potential risks that accompanythe process of globalization and design policies to mitigate these risks. Stiglitzpoints out that the key to China’s and Korea’s success was in fact based on theirability to govern and regulate the globalization process in such a way as to avoidsome of its potential harmful effects while taking full advantage of its benefits.

In his paper, “Globalization of the World Economy: Potential Benefits and Costsand a Net Assessment,” Michael Intriligator concludes that there are both positiveand negative aspects to globalization, that some of its positive features stem fromthe effects of increased competition, and that some of the negative aspects can beoffset through international agreements on policy or through the development ofnew international institutions. Thus, while globalization can cause internationalconflicts, it can also contribute to their containment through the beneficial effectsof competition and the potential of global cooperation to treat economic and otherthreats facing the planet.

In “New Growth Centers in This Globalized Economy,” Lawrence Klein ex-amines how economic liberalization and globalization has led to rapid growth inChina, India, and Russia. He points out that China has achieved its aim of qua-drupling its GDP in the two decades from 1980 to 2000 and is well on its way ofduplicating that success during the next two decades. India used to achieve annualgrowth rates of about 5% in some years but then it inevitably fell back to lower rateswhen agriculture weakened. Now, India excels in software and finance and strivesfor annual growth rates of 7% during most years. Although it is not expected thatRussian economic growth will be as rapid as that of China or even that of India,

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it will certainly be encouraged by the demonstration effect from these two Asiangiants.

Robert Barro points out in his paper “Current Potectionism and the Benefitsof Free Trade,” that the present Administration in Washington does not seem tobe overly committed to free trade. Instead it seems that each policy is driven bythe interest of a particular group, which often leads to some kind of protectionismand subsidy. This was evidenced by agricultural subsidies and protection of timberimports from Canada and steel tariffs (protecting an industry which has been pro-tected for at least thirty years) in previous years and now by protectionism againstChinese textile imports. These mercantilistic policies slow down the process ofglobalization and growth and involve a great deal of wasteful spending.

Dani Rodrik points out in his paper “Globalization and Growth — Lookingin the Wrong Places” that the most important barriers to globalization do notarise from the traditional border-type measures such as import tariffs, quantita-tive restrictions, and restrictions on the flow of foreign capital but from what hecalls “institutional and jurisdictional discontinuities” or the diversity of nationalinstitutional arrangements. It is, thus, the elimination of these discontinuities, es-pecially those in the area of labor mobility, rather than from reducing traditionalprotectionism that potentially can provide large benefits.

In his paper “Extending the limits of Global Financial Integration,” KennethRogoff writes that it is wrong to believe, a many do, that “the IMF causes austerity”and makes crises in developing countries even deeper. He points out that what weseem to have here is a confusion between cause and effect. Rogoff also believesthat capital controls are not a panacea to avoid crises and that developing countriesshould not open up their financial markets in advance of trade liberalization. Twoimportant causes of sovereign defaults (such as the one in Argentina at the end of2001) are generally excessive government borrowing and overly rigid exchangerates.

The basic conclusion reached by Vito Tanzi in his paper “Globalization andFiscal Reform in Developing Countries,” is that globalization creates pressuresfor developing countries to increase public spending to upgrade the countries’infrastructures, improve their institutions, finance eventual costs of corrections inpolicies, compensate some of those most affected by rapid globalization, retrainsome of them, and replace the traditional primitive and inefficient system of socialprotection with a minimum, modern safety net. Nations should first try to becomemore efficient in the use of public revenue and then reform their tax systems toincrease tax revenue through personal and value-added taxes, especially the latter.

In the last paper in this Issue, this author points out that globalization is impor-tant and inevitable — important because it increases efficiency, inevitable becauseinternational competition requires it. Nations that globalized (i.e., those that openedup to international trade and investments) grew more rapidly than advanced na-tions (thus reducing the gap with advanced nations) during the past two decades,while nations that did not globalize grew less rapidly than globalizers and ad-vanced nations, thus increasing their gap with respect to the developing nations

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that globalized and advanced nations. Looking at thenumber of poor people ratherthan averagenational poverty levels, we find that the number of people who livein poverty (defined as those who live on less than $1 per day in terms of 1985PPP) decreased significantly over the past two decades, but most of this decreaseoccurred in China.

Dominick SalvatoreFordham University, Bronx, NY 10458, USA

Tel.: +1 718 817 4045; fax:+1 914 337 3355E-mail address: Salvatore@Fordham.edu

Available online 26 May 2004