Effects of globalization: inequality and social dimension Giovanni Marin Department of Economics, Society, Politics Università degli Studi di Urbino ‘Carlo Bo’
References for this lecture • BBGV – Chapter 14 • Paragraphs 14.5, 14.6 Spring 2019 Global Political Economy 2
The ‘social’ dimension of globalization • In this lecture we depart from the direct implications of the models studied so far • Broader discussion of the impact of globalization on poor and emerging countries Spring 2019 Global Political Economy 3
Definition of poverty: the poverty line • The poverty line is the minimum amount of income (in ‘per day’ terms) that is needed to satisfy basic needs – Basic nutrition – Cloth – Shelter • It is not expressed in nominal terms – One dollar in Urbino is worth much more (in terms of goods that can be purchased) than the same dollar in Copenhagen – Purchasing Power Parity ( PPP ) conversion • If a person earns less (or cannot spend more) than what is needed to satisfy the basic needs, it is said to be absolutely poor Spring 2019 Global Political Economy 4
The poverty line • The World Bank usually employs two different defintions of poverty line – $1.25 a day (international 2005 PPP dollars) – $2 a day (international 2005 PPP dollars) Spring 2019 Global Political Economy 5
Millennium Development Goals (set in 2000, to be reached by 2015) Spring 2019 Global Political Economy 6
Figure 14.6 Number of poor people in the developing world, 1981-2008 a. Number of poor people in developing b. Number of poor people in developing world; headcount index, million world; headcount index, % of population 80 3,500 70.5 2,901 70 3,000 60 $2 per day 2,500 $2 per day 52.9 2,453 50 1,906 43.6 2,000 40 1,500 $1.25 per day 30 1,281 22.8 $1.25 per day 1,000 20 500 10 0 0 1980 1990 2000 2010 1980 1990 2000 2010 Source: author’s calculations based on World Development Indicators online; the developing world consists of developing Spring 2019 Global Political Economy 7 countries in EAP, ECA, LAC, MENA, SSA, and SA, see the main text.
Poverty eradication • On average , the fight to poverty has been very successful • Extremely successful in some areas, poorly successful in some other areas Spring 2019 Global Political Economy 8
Figure 14.7 Poverty headcount ratio at $ 1.25 a day (PPP), % of population, 1981-2008 Poverty headcount ratio at $1.25 a day (PPP), % of population 80 EAP SSA 60 SA 40 Developing world total 20 LAC MENA ECA 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Source: author’s calculations based on World Development Indicators online; see the main text for regional abbreviations Spring 2019 Global Political Economy 9 EAP, ECA, LAC, MENA, SSA, and SA
Income distribution • The ‘ poverty line ’ approach to measure poverty and income distrubition takes an ‘ individual ’ approach – For each individual , no matter its country of residence, we need to know about his income and compare it with the poverty line • Changes in the global distribution of income depend on the combination of – Within-country changes in income distribution (e.g. the one driven by HOS model) – Between-country changes in income distribution (e.g. due to convergence-divergence) Spring 2019 Global Political Economy 10
Figure 14.8 Global income distribution, 1970 and 2006 density a . 1970 poverty line 60,000 World 40,000 East 20,000 Asia South Asia OECD SSA 0 $50 $500 $5,000 $50,000 Income level; constant 2000 international $, log scale Source: based on Pinkovskiy and Sala-i-Martin (2009); the poverty line corresponds to $312 a year, or $1 a day in 2006 Spring 2019 Global Political Economy 11 prices; see the main text for abbreviations; note: not all regions are identified in the figures
Figure 14.8 Global income distribution, 1970 and 2006 density b . 2006 poverty line 120,000 World 80,000 40,000 East Asia South OECD Asia SSA 0 $50 $500 $5,000 $50,000 Income level; constant 2000 international $, log scale Source: based on Pinkovskiy and Sala-i-Martin (2009); the poverty line corresponds to $312 a year, or $1 a day in 2006 prices; see the main text for abbreviations; note: not all regions are identified in the figures Spring 2019 Global Political Economy 12
Figure 14.9 The Lorenz curve and the Gini coefficient 1 Gini coefficient = A/(A+B) cumulative income A B 0 0 cumulative population 1 Spring 2019 Global Political Economy 13
Figure 14.10 Income inequality; Gini coefficient, selected countries, 1981-2010 Gini coefficients for selected countries; per cent 1981-2010 80 maximum 70 South Africa Brazil 60 50 Nigeria 40 Russia India 30 China 20 minimum 10 0 1980 1985 1990 1995 2000 2005 2010 Source: author’s calculations based on World Development Indicators online; minimum is 19.4 for Czech Republic in 1988; Spring 2019 Global Political Economy 14 maximum is 74.3 for Namibia in 1993
Figure 14.11 Global income inequality; Gini coefficient, 1970-2006 Global income inequality; Gini coefficient, 1970-2006 0.75 0.70 0.679 0.65 0.612 0.60 0.55 1970 1975 1980 1985 1990 1995 2000 2005 Spring 2019 Global Political Economy 15 Source: based on data from Pinkovskiy and Sala-i-Martin (2009); note: scale does not start at zero
Capital mobility and inequality • North-to-South (vertical and horizontal) multinational activity contributes to economic growth (value added) • Value added is distributed to production factors – Wages paid to local workers contribute to the wealth of the host country – Compensation to capital is sent back to the home country of the multinational • This has relevant implications for the global distribution of wealth Spring 2019 Global Political Economy 16
Globalization and urbanization • Globalization leads to the specialization in production • Specialization occurs both in developed and in developing countries • Rapid specialization has important implications for within-country structural change – Countries that specialize in industrial production will experience a migration from rural areas to industrial (urban) areas – Specialization in agricultural production (e.g. monocolture) requires dramatic improvements in agricultural productivity ➔ poor people migrate to urban areas as subsistence agriculture is not possible any longer (e.g. land grabbing) Spring 2019 Global Political Economy 17
Source: World Bank China Development Indicators 70 60 50 40 30 20 10 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Trade (% of GDP) Urban population (% of total) Spring 2019 Global Political Economy 18
Source: World Bank South Korea Development Indicators 120 100 80 60 40 20 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Trade (% of GDP) Urban population (% of total) Spring 2019 Global Political Economy 19
Source: World Bank World Development Indicators 70 60 50 40 30 20 10 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Trade (% of GDP) Urban population (% of total) Spring 2019 Global Political Economy 20
Nairobi, Kenya Slum of Korogocho Globalization and urbanization My picture, June 2004 Spring 2019 Global Political Economy 21
Urbanization and social conditions • Rapid urbanization is very difficult to be governed and planned – Housing – Transportation – Provision of public services • Poor institutional quality makes things worse • People migrate from rural to urban areas to increase their monetary income but – The price of goods and services that satisfy basic needs are higher in urban than in rural areas – Less access to ‘ informal economy ’ in urban areas (e.g. it is impossible to cultivate your own vegetable garden) Spring 2019 Global Political Economy 22
Urbanization and social conditions • Contribution of urbanization to improve social conditions – Access to health services – Access to electricity and water – More opportunities for employment in the industrial and service sectors • Contribution of urbanization to worsen social conditions – Vulnerability to the economic cycle – Poor air quality – Weaker ties with family and clan that act, in rural context, as ‘social security’ Spring 2019 Global Political Economy 23
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