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This is an archived USAID document retained on this web site as a matter of public record.
More trade and investment mean faster growth
>> Foreign Aid in the National Interest >> >> Chapter 2 Jump to Chapter 2 Sections:
>> New thinking on drivers of growth >> Income inequality is declining >> More trade and investment mean faster growth >> Increasing U.S. imports through the African Growth and Opportunity Act >> A microeconomic agenda for development >> How can the U.S. support growth in developing countries >> Background papers >> References
Poor people in globalizing countries are less poor than they were a decade ago.17 Higher income inequalities, as in China, have been caused more by factors unrelated to globalization (such as regional differences and social and education variables) than by lower incomes among poor people. In fact, incomes have increased among the poorest 20 percent of the world’s people, though less rapidly than among other population groups. Increased trade usually accompanies faster growth and does not systematically change household income distribution, so it is generally associated with increased well-being among poor people.
Countries are better able to enter global markets if democracy and the rule of law are in place and corruption and monopolistic policies are held in check (figure 2.4). There is also a strong correlation between freedom and growth, in keeping with the typology that normal integrators are freer than slow integrators. As a result globalization has been a significant force not only in reducing inequality between states but also in reducing poverty.
Globalization favors participants who liberalize trade-particularly those with industrial and manufacturing capacity and leaves behind those who do not. In the 1960s the East Asian tiger economies (Hong Kong, Republic of Korea, Singapore, Taiwan) began to change their economic policies and become more integrated with global markets. Other economies inside and outside the region soon followed suit, often with impressive results. During the 1980s and 1990s many other countries including Chile, China, India, Mexico, Uganda, and Vietnam also recognized the correlation between freer trade and economic growth. In addition, the fall of the Berlin Wall in 1989 caused a surge in integration of regional and global markets. The gains from lifting the remaining restrictions to trade are nevertheless enormous: on the order of $250 billion a year, $108 billion of that developing countries, with 60% from developing country liberalization and 40% from rich country liberalization. Trade can thus be a powerful engine of growth. Over time it has become clear that successful globalization requires more than just liberalizing trade: other essential efforts include liberalizing domestic commodity and capital markets, establishing the rule of law to enforce property rights, and implementing effective regulation. (Liberalizing capital markets too soon and too fast creates other problems, however, indicating the need for a well-designed approach.)
Following the September 11, 2001, attacks on the United States, a close look at countries harboring terrorists shows that their economies suffer not from the excesses of globalization, but from a lack of it. Some, such as Algeria and Pakistan, are among the most closed to trade in the world (figure 2.5). Many, including Iran, Iraq, Jordan, Qatar, Saudi Arabia, Syria, and the United Arab Emirates, saw real per capita incomes decline between 1985 and 1998.20 These countries also have limited political freedoms and weak human rights, which have been linked to poor economic performance.
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Last Updated on: October 07, 2009 |
