Trade Liberalization And Poverty Essay

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Trade liberalization has been touted by western institutions as essential for the stability of advanced economies, and as a panacea to the developing countries’ development needs. For instance, Goldstein, Rivers, and Tomz (2007) suggest trade liberalization was not only beneficial to advanced economies, but it also benefits all states, including developing nations, many of which today argue that they have gained little from it (Goldstein, Rivers and Tomz 2007, 39). As well, Oatley (2012) argues that majority of countries believe that they are better off with trade liberalization than without it, nonetheless, like all political systems, organization of international trade “reflects the interests of the powerful” (Oatley 2012, 43). While trade liberalization has been touted by the world’s financial institutions as the panacea to the developing countries’ needs, evidence seems to suggest that economic globalization’s impact of poverty reduction in developing countries is largely limited. The scholarship examining the extent at which trade liberalization (henceforth refers to as economic globalization) impacts poverty levels is limited. This essay examines the relationships between economic globalization and poverty levels in African countries. For instance, a 2006 UNDP report illustrates that just 7.2 percent of Bayelsa and Rivers State (Nigeria) residents were poor in 1980, but in 2004, the poverty index figures rose exponentially to 44.3 percent; Nigeria’s national rural poverty index jumped from 28.3 percent in 1980 to 48 percent in 200, and the 2010 Human Development Report on Nigeria’s Multidimensional Poverty was at 43.25 percent and its population living below $1.25 a day was at 67.98 percent . The reason for this decline, the report noted, has to do with the destructive impact on globalization on the local economy in Nigeria. The report avers that more than 70 percent of the residents’ income comes from the informal sector; consisting of farming, fishing and other related income-generating activities . As Nigeria’s economy have become globalized, these local income generating activities were undermined. While the degree of economic globalization keeps rising over time in Nigeria, the country’s poverty indexes keep increasing as well. This finding emerging from Nigeria contradicts how trade liberalization has been hyped as something beneficial to all. Do gains made from economic globalization lead to poverty reduction or increase poverty? Taking Africa’s gloomy economic performance and its struggle to curb poverty into consideration, any findings linking globalization to an increase or decrease in poverty in Africa will have a significant external validity. The article uses a mix-method approach to investigate the relationship between globalization and poverty. First, a large N-analysis of ten years’ panel data will be carried out in the 53 African countries. Holding variables like corruption, conflict, education and population size constant, the study measures globalization’s impact on poverty levels in Africa. The unit of analysis is the country year. The study time frame ranges from 2005 to 2015. Second, a within-case study will be conducted in Nigeria to see how variations in globalization over time have caused changes (positive and negative) in poverty levels. Conducting a country-level analysis will give an important face-value to …show more content…
In one of the systematic studies, Reuveny and Li (2003) explored the relationship between economic openness, democracy and inequality (Reuveny & Li, 2003). Using a country decade as a unit of analysis and a sample of 69 countries, and timeframe from 1960 to 1996, the authors find that “trade reduce income inequality, foreign direct investments increase income inequality, and financial capital does not affect income inequality” (Reuveny & Li, 2003, p. 575). Reuveny and Li’s research reveal that “effect of trade openness on income inequality is negative and statistically significant at the 5% level for all the samples, indicating that trade openness reduces income inequality” (Reuveny & Li, 2003, p. 588). Beer and Boswell (2001) also studied the effects of economic globalization on inequality (Beer & Boswell, 2001). This research stipulates the underlying circumstances under which transnational corporate infiltration and other global influences effect variations in income distribution domestically. The finding is a strong indication that countries extreme reliant on “foreign capital experience high and worsening income inequality” (Beer & Boswell, 2001). As Heinemann (2000) shows, more globalized countries have lower increases in government outlays and taxes (Heinemann & Friedrich,

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