International Economic, Quiz Example

Final Exam

Read the essay, “Globalization and Morality,” which is uploaded on Blackboard under “Assignments”, and summarize the essay on this page.

Globalization is a highly complex and controversial topic. Professor Rassekh’s essay attempts to examine the topic through the empirical lens of the interaction between globalization and poverty. Overall, Rassekh argues that globalization has played a key role in lifting unprecedented absolute numbers of individuals out of poverty in the developing world. Although this achievement undoubtedly came with costs, particularly as wages have largely flat lined in the developed world along with a shrinking middle class, Rassekh posits that the elimination of poverty for such a large group of people was not possible without it.

Rassekh argues that globalization has played a key role in the elimination of poverty. Starting with a historical appraisal of world economic growth, Rassekh argues that world economic growth was languid up to the first part of the 19^th century. This lack of growth, at least in Rassekh’s eyes, was due to a lack of economic activity and globalization. Starting with the Industrial Revolution, and continuing into the 20^th century with the industrialization of vast swaths of developed countries, globalization became a key driver in driving economic activity and rising incomes, particularly among those in poverty.

Based on that historical analysis, Rassekh examines empirical evidence and the putative correlation between the impact of globalization on poverty. The cited evidence is impressive: According to World Bank statistics, the number of people living on less than one dollar a day has decreased from nearly 1.3 billion people in 1970 to 867 billion in 2005- this decline is all the more impressive since there was substantial global population growth during this time period. The world poverty rate (expressed as a percentage) also has declined: In the year 1820 roughly 85 percent of the population lived in poverty; the rate declined to roughly 16.1 percent in 2005. While these statistics deal with the poverty side of the equation, they are merely general statistics and not dispositive of a robust statistical relationship between globalization and reduction of poverty worldwide.

In order to examine this relationship, Rassekh parses data from six countries and three continents were poverty was most concentrated. Statistical tests found a significant, negative correlation between trade and poverty, meaning as the level of trade in the sample increased the level of poverty in those countries decreased. Rassekh further buttresses his argument through examining how globalization could exert a causal impact on poverty: 1) The first is through the increase in multinational investment in developing countries that has the impact of increasing labor participation (reducing underemployment and unemployment) and increasing exports; 2) Greater economic integration leads to increased economic growth that then filters through in an increase in per-capita income, leading to a decrease in poverty. Rassekh then provides persuasive evidence that countries that grew faster (and pursued economic integration) had a substantial reduction in domestic levels of poverty. He then ends the essay with more anecdotal evidence from countries such as Japan that chose to pursue the path of economic growth in the mid-19^th century.

Overall, Rassekh’s argument is persuasive. There is robust evidence that increases in economic growth ultimately lead to a reduction in poverty, even if the relationship is somewhat delayed. Having said that, however, Rassekh has a number of conceptual issues he should correct for his argument to be more concise. First, globalization likely needs a more accurate definition than that pertaining to free market, pro-growth policies. Indeed, it is because “globalization” has become an ambiguous phrase that more conceptual work should be done to define the term and its place in history. While countries pursued free trade policies in the 19^th century and the 20^th century, it is not clear they both should be considered as a product of globalization. In addition, his model does not deal with the (numerous) anti-trade policies that the Asian tigers undertook their meteoric economic rise in the 1960s and 1970s. Also, he might want to add additional granularity regarding the definition of poverty. His major claim of poverty reduction would likely still stand under a more stringent definition of poverty. But the use of statistics of individuals “living in poverty” in the 19^th and 20^th centuries are probably not the same, particularly if individuals living in poverty in more developed countries have access to social goods and services that individuals in developing nations do not have access to. Finally, it was interesting to see him impute a “moral” meaning to the process of globalization. Often times, economists look at phenomenon through black and white analytical lenses; either it is “efficient” or “non efficient” but they (rarely) make judgments regarding the morality of an outcome. One could argue that Rakkekh should follow the same academic convention; however, by looking at the connection between globalization and poverty he sheds new light on how economic processes can and do have a positive (and negative) impact on individuals’ standard of living.