The Relationship between Income Inequality, Poverty and Globalization [chapter]

Almas Heshmati
2007 The Impact of Globalization on the World's Poor  
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more » ... von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper introduces two composite indices of globalization. The first is based on the Kearney/Foreign Policy magazine and the second is obtained from principal component analysis. They indicate the level of globalization and show how globalization has developed over time for different countries. The indices are composed of four components: economic integration, personal contact, technology and political engagement, each generated from a number of indicators. A breakdown of the index into major components provides possibilities to identify the sources of globalization at the country level and associate it with economic policy measures. The empirical results show that a low rank in the globalization process is due, in addition to involvement in conflicts, to economic and technology factors with limited possibility for the developing countries to affect. The high ranked developed countries share similar patterns in distribution of various components. The indices were also used in a regression analysis to study the causal relationships between income inequality, poverty and globalization. The results show evidence of a weak and negative relationship between globalization and income inequality and poverty. Globalization 1 has become the way to describe changes in international economy and in world politics. Economists define it as the free movement of goods, services, labour and capital across borders. Globalization is the result of reduced transportation and communication costs, lower trade barriers, faster communication, rising capital flows, increased competition, standardization, and migration to mention, a few key causal factors. The process has brought the developed economies closer together and made them more strongly interrelated. In the new era of growing integration of economies and societies, individuals and corporations reach around the world further, faster, and more economically than before. This subjects states and individuals to more intense developed market forces by causing rapid changes in trade relations, financial flows, and the mobility of labour across the world. However, there is a large heterogeneity in the degree of the process of globalization over time and across countries and regions as well as within countries across cohorts and skill groups. This heterogeneity causes disparity in development, especially with regard to negative effects such as rising inequality within and between countries, and points to the need to find the sources of disparity and to quantify its magnitude and impacts on the living conditions of the world population.
doi:10.1057/9780230625501_3 fatcat:jozcrxdxlbb3lh5zcxeenmemsa