How Trade and Globalization can Help the Poor (Essay Sample)

IMPACT OF TRADE AND GLOBALIZATION IN REDUCING INEQUALITY
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Strong opinions have developed regarding globalization and the well being of the poor. The opinions have a belief in value of global free markets in expanding the horizons for the poor. The interpretation of globalization can have different understanding as there are those who believe that it is a global reach of new technology while others refer globalization as economic globalization in the sense of expanding foreign trade and investment. The most powerful tool to reduce poverty is economic growth sine no individual country can successfully develop its economy by shielding itself from international trade and foreign direct investment that is long term in nature (Goldin & Reinert, 2007). The achievement of sustainable economic growth has been realized through seizing the opportunities that are offered by the international market. Although many countries have been confronted with obstacles in expanding and diversifying their markets, there is the need for trade reform and liberalization so as to deliver the benefits of globalization and trade to reduce poverty (Anderson, 2003). Trade reforms and expansion have impacted on the poor specifically with consumption patterns as well as in sectors where the poor are economically active because they are integrated to the world economy.
The impact of globalization on poverty and on income inequality is the major effects of globalization for both developed and developing countries. The major benefits that developed countries accrue are that during the period of increased globalization and international trade they experienced reduced price of goods and services as well as employment (Lerman, 2002). The developing countries demonstrated a widening gap on income inequalities as the case of china between the urban and rural population (Goldberg & Pavcnik, 2006). At later staged of globalization there is an increase on income inequalities and increased growth. This is because under trade reforms owing to the green revolution enhanced the decline of poverty in rural areas and rater a rapid revolution of industrialization due to economic reforms thereby increasing the urban population income (Collier & Dollar, 2002).
Economic growth is essentially growth of factors of production, improvement in efficiency in allocating these factors across the economic activities and innovation and development of new products bring about long term growth that improves the lives of the poor. Therefore, the change in investment and opening of the economy to international trade affects the growth of capital and labor making such economies to return to scale of growth due to indefinite increase of capital relative to labor (Bigman, 2002). Economies that are open to international trade ensures the factors of productions are effectively allocated resource flow in the economy in relatively scarce domestic economy move to international market where they earn higher returns. The freedom of movement of resources globally accrues the benefit of innovation since it is available globally. Globalization and growth spurs large volumes of trade flows.
Financial liberalization has eliminated financial repression thereby increasing competition of modern and liberalized financial sector. Individuals are able to access credit for small enterprises and raise the returns to the banking deposits which is principle to small savers. In the end, the small enterprises are able to generate good jobs and also raise wages for the working poor (Srinivasan, 2009). Additionally, globalization has enhanced the privatization of utilities which has played an important role to the poor for the distribution of income over the developing economies. This is because of the dramatic access to services which were publicly managed which were characterized by insolvency there by rationing their services significantly (Birdsall, 1999). Such utilities as power and water have become available to the poor population and this has made them to improve their living standards.
Open trade and investment policies which are good have a positive effect to poor countries in that they create good investment climate that offers firms, particularly small domestic firms, to start up, prosper and expand (Bigman, 2007). Such an environment is created through good economic governance that does not offer full tax breaks and subsidies but control bureaucracy and protection of property right thereby enhancing connectivity with global markets. The development of a good investment climate is through identification of problems facing small firms since employment in urban and rural areas is central to improving the living standards of the poor (OECD, 2011). Communities are able to source foreign investment as well as international market for goods and services that strengthen their investment climate. Foreign financial institutions in local markets enhance financial infrastructure and the right incentive emanating from foreign investment effectively provides good infrastructure and other services to businesses.
The most important aspect of globalization and trade in elimination of poverty in developing and developed countries is education. Higher returns to education enhance households to invest in their children, which highlights good education and health delivery. The growth spurred by integration of economies can not be realized by people who have no education and access to health care (Kohlmorgen, 2003). This is because poor social services enhance globalization to mount inequality among the rich and the poor within economies leading to persistence of extreme poverty. Globalization has enhanced education attainment and decline infant mortality due to investment in social services that enhance the poor benefit from growth (Bigman, 2002). A combination of social services and a good environment for investment has critically empowered the poor to participate in activities that spur growth since they are involved in decisions affecting their lives.
Although globalization and trade has become a powerful force for growth and reduction of poverty in developing countries, there are specific winners and losers in the short run. This is because both the rich and poor countries experience firm level dynamic benefit to open trade and investment that emanates from shake up of less efficient production units and adapt to new and efficient ones that startup and expand rapidly (Collier & Dollar, 2002). Such investments create more room for labor market as well as raising the minimum wages in both rich and poor countries (Bardhan). Therefore, social protection is offered to the dynamic of labor market in the open economy as poor households have the capacity to engage in risk of entrepreneurship. Economic integration involves policies that enhance trade, financial reform and development assistance that foster regional cooperation through shared infrastructure and investments (Kanbur, 2009). Additionally the developed nations on their part have increased market access of products from developing nations and such assistance commensurate with the millennium development goals as it reinforces growth. This is attained by increasing labor intensive production which accumulates human capital as well as adaption to new efficient technologies.
There are channels that have explained why the experiences of globalization in developing countries have conformed to alleviation of poverty. Trade is the major factor that has significantly reduced inequity through the underlying empirical work which has expanded trade to international markets thereby enhancing flow of international capital and induction of technological change from biased skills as well as heterogeneity of firms (Birdsall, 2001). The effect of globalization is dependant on many factors of which some ore time and country specific.
There are countries which exercised trade protectionist prior to liberalization which affected sectors that could kick start rapid economic growth (Goldberg & Pavcnik, 2006). The flexibility of domestic market in adjusting to current changes due to globalization would be hindered by protectionist trade. International trade as well as globalization has ensured flexibility of domestic market to changes in economic environment and more specifically to which countries have enhanced mobility of both labor and capital and also embracing change to skill biased tec...