Globalisation and Poverty

Maurizio Bussolo, Jeffery I Round, Maurizio Bussolo, Jeffery I Round

• Publisher: Routledge
• Year: 2006
• ISBN:
  9781134289349
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The consequences of globalization for the world's poor are uncertain and fierce rhetoric is dividing its supporters and detractors.

The channels of effect of essentially macroeconomic shocks on the microeconomic position of individuals and households in poor countries are many and various. This book addresses three core issues: 1) what are the main channels of effect? 2) what are the lessons to be learned from policy measures to alleviate negative poverty consequences? and 3) do the proposed analytical approaches assist in providing a monitoring capability?

This volume assesses the more easily quantifiable effects resulting from price and quantity responses in the goods and labour markets. It includes studies of Colombia, Ghana, India, Nepal, Bangladesh and Vietnam. It uses key analytical approaches, most of which are based on numerical simulation methods employing models with different levels of complexity. These models capture the features of an economy, how it functions, and how it might respond to globalization shocks. The most important collective contribution of the authors is their establishment of directions and magnitudes of effect, based on empirical evidence.

8 Globalisation and poverty changes in Colombia

Maurizio Bussolo and Jann Lay

Introduction

During the last two decades, bilateral and multilateral donors’ policy advice to developing countries has been centred on greater market openness and better integration into the global economy. However, this advice has recently been challenged, and the effects of globalisation on poverty are generating growing concern. To address these concerns and, at the same time, to assist in the formulation of better pro-poor policies, a clearer understanding of the complex relationship between globalisation and poverty is needed. The main objective of this chapter is to determine the signs and strength of the effects of trade liberalisation, which is an important globalisation shock on poverty, in the context of Colombia.

Towards the end of the 1980s Colombia abandoned its import substitution industrialisation policy and started a process of trade liberalisation, which culminated with the drastic tariffs cuts of the 1990–91. Colombian trade reform has been one of the most swift import liberalisations in Latin America. Within a few months, tariffs were more than halved and a series of institutions designed to regulate commercial policy had been created or reformed, including the Ministry of Foreign trade. In addition to the trade liberalisation policy, the government implemented a series of other structural reforms ranging from labour market reform and foreign exchange deregulation, to financial markets reforms, including establishing the independence of the central bank, and to the promulgation of a new constitution.

In the same period, poverty showed some improvements in urban areas but stagnated in rural areas, and inequality registered a significant countrywide increase. Identifying the poverty and inequality effects of each of the elements of the reforms, as well as those originating from additional technology and external shocks that affected Colombia in the first half of the 1990s is a complex task, even when two well-conducted household surveys provide data before and after the reform effort, namely for the years 1988 and 1995.

To tackle this task, this chapter follows a quite different approach from that of a large, although not uncontroversial, literature that analyses the links between openness and growth (Rodriguez and Rodrik, 2000, and references cited therein), or from those studies that extend these links to include poverty (Dollar and Kraay, 2000). This literature relies on cross-national regressions and, although they provide some evidence on the positive relationship linking openness to growth and poverty, in the words of Srinivasan and Bhagwati (1999) ‘nuanced, in-depth analyses of country experiences […] taking into account numerous country-specific factors’ are needed to plausibly appraise the connections between openness and gr...