Development through Globalization?

Does Economic Globalization provide the Solution to World Poverty?

Bachelor Thesis, 2007

13 Pages, Grade: 7,5


Table of Content


Economic Globalization

Globalization in numbers

Different effects of globalization in different regions
East Asia




Living in the 21st century one often encounters the terms development, underdevelopment and developing world. Most of us, living in the so-called developed world, feel the need to help to encourage development in the rest of the world. Unfortunately, there seems to be a great difference in the understanding in what way this aid should be given. Since discussing all the different possibilities to evoke development is impossible due to space constraints, the paper is going to concentrate on one major theory; globalization. Surely, globalization is a complex and wide-ranging issue in itself and thus it needs to be narrowed down. Therefore, the paper is merely going to deal with economic globalization and its relation to development. In the following few pages, there will be a conceptionalization of the term „economic globalization“, followed by a discussion in how far this kind of globalization has the potential of evoking development. During the paper there will be an examination in how far the theoretical outcomes are achieved in reality. There will be a discussion of hard facts in terms of poverty reduction as well as the achieved increase in welfare and its distribution. Since not every part of the world is developed to equal standards these areas which are lacking behind need to be identified and there will be a discussion why some parts benefit from globalization whilst others miss out. The paper is going to finish with a summary and an outlook in how far globalization could be used better in order to encourage development.

Economic Globalization

Globalization has many different facets and definitions but the one generally accepted is the definition given by Ritzer who sees Globalization as “the study of the world as a whole” (p. 81). This definition is a very broad one, without going into detail of the various strands there are, such as economic, social and political interaction. This differentiating is not always necessary, if one only wants to show that the world has become “one”. In this line of thought Giddens claims that “globalisation can [...] be defined as the intensification of worldwide [...] relations which link distant localities in such a way that local happenings are shaped by the events occurring many miles away and vice versa” ( in Ritzer, p. 85). Especially this interconnection, interaction and interdependence between different worldwide actors plays an important role according to economists. Thus, one can say that economic globalisation is the “integration of national economies in the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology” (Bhagwati, 2004, p.3). This integration leads to a deregulation of trade, investment and capital movement, hence creating a global market working according to Adam Smith's “invisible hand”. The principle of the “invisible hand” means that the market regulates itself, if it does not experience any restraints. In a liberal economy there will be a shift in production and it is this reallocation of resources that will bring the highest profit for all involved parties ( Adam Smith, 1982, p 170 - 210). Thus, globalization is seen as a positive phenomenon since a free market on a global scale ensures an efficient production according to Ricardos principle of “comparative advantage” (Held, 2000, p. 89). This means that rich countries will specialize in capital and skilled-labour intensive products and services while poor countries will specialize in low skilled-labour and more labour intensive products. Hence, the possibility for trade is given (Dehesa, 2006, p.39). According to this liberal approach, economic globalization ensures that everyone produces what they are best at and thus there will be an increase in world wide production and welfare. In the following pages I will use the term globalization when talking of economic globalization.

Globalization in numbers

When discussing globalization in theory, one can easily get lost between all these different opinions. Thus, the following part is going to have a narrow look at the actual happenings.Whilst those in favour of globalization tend to argue that globalization leads to an increase in welfare and that development is a logical consequence of globalization, this need to be scrutinized. In the following part there will be an examination of different factors such as „reduction of poverty“ and „increase in welfare“ as well as the distribution of welfare.

Starting with the issue of poverty, the connection between globalization and poverty reduction needs to be made explicit. Through globalization there is an increase in trade, „trade enhances growth and [...] growth reduces poverty“ (Bhagwati, 2004, p 53). Assuming that the first two steps are correct, there will be an investigation in how far the global poverty rate has changed.

When having a look at the poverty rate it seems that since 1990, there was a great success achieved. In total numbers, 120 million people managed to lift themself out of extreme poverty (extreme poverty being defined as living on an income under 1 US $ a day) between 1990 and 2002. This means that only 21,1% of the world population live now in absolute poverty instead of 27,9% (in total numbers 1011 million people continue to live in absolute poverty). When discussing these numbers one needs to be careful, since surely this poverty reduction sounds all very nice, but where did it actually happen? Under closer examination it becomes apparent that between 1981 and 2001 the poverty reduction in China and East Asia was imense. One of the best examples has to be China. From 1980 to 2000, the gross domestic product grew at a 10% rate annually whilst the poverty rate was reduced from 28% in 1978 down to 9% in 1998 (Bhagwati, 2004, p. 65). Looking at the wider picture it becomes even more clear. Whilst in 1981, 56% of the Asian population had to live in absolute poverty, this number was reduced drastically down to 17% in 2001. Considering the high population of this area it is obvious that this development had a big impact on the global data. A lot less cheerful picture is drawn when turning towards other parts of the world such as South America, Africa and parts of Europe. Here one can see a stagnation or even a negative trend. Especially the African part which is situated South of the Sahara had a shocking increase in extreme poverty (BPB, Debiel, Messner, Nuscheler, 2006, p.172-174). Thus, although there was an overall reduction of extreme poverty, the reduction was achieved unevenly.

Continuing with the issue of increasing welfare and its distribution, the connection between globalization has to be made clear again. Globalization leads to an increase in world wilde economic activity. Due to the free market principles there is growth and this growth results in an increase in welfare. The welfare of a state is generally measured in terms of Gross Domestic Product (GDP). In 2000 we had an average world wide GDP growth rate of 4,3% ( World Bank, 2006). Thus, one could assume that everyone was better off. Nevertheless, the problem with numbers and statistics is that they fail to give a complete picture. The interesting question is, how is the wealth distributed on a global scale? In 1999, the Guardian published an article discussing the growing gap between the rich and the poor. According to this article „the combined wealth of the world's three richest families is greater than the annual income of 600m people in the least developed countries“ (Denny & Brittain, in Held (2000), p. 112). This gap has been constantly widening. Whereas in 1970, the wealth of the richtest fifths of the world's people and the worlds most poorest fifths stood in a relation to 30 to 1, this gap has widenend resulting in a relation of 74 to 1 in 1999. Here it becomes clear that the mere number behind the three letters 'GDP' does not hold enough information in terms of distribution. In regard to distribution there are two inequalities. On the one hand there is a difference in distribution between nation states and on the other hand there is a distribution difference inside a nation state. The problem arising in a globalizing world is that different parts of society have different possibilities in using the global market. While on the one side high-qualified labour, innovative entreprises and established free market societies are capable of using all the advantages of global economic integration, whilst low-skilled labour, instable market economies and economic weak regions are left behind. This is due to changing market conditions. With the entry of economies such as China, India and the Ex-Soviet Union into the world market, an abundance of labour has been created whilst the capital available has not increased majorly. This leads to a reduction of labour wages especially in the low wage sector. Thus, labour intensive low wage sectors loose out. Since many underdeveloped countries rely on even these sectors, they are falling behind and the gap is widening (BPB, Debiel, Messner, Nuscheler, 2006, p. 153& 154). Thus, there is a creation of wealth but the distribution is more than inequal.


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Development through Globalization?
Does Economic Globalization provide the Solution to World Poverty?
Maastricht University
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development, globalization, economic, solution, world, poverty
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Bachelor of Arts Esther Schuch (Author), 2007, Development through Globalization?, Munich, GRIN Verlag,


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