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Giving Compass' Take:
· Although globalization has been highly criticized and claimed to have gone too far, Shanta Devarajan explains that it really hasn't gone far enough. Devarajan focuses on the importance of expanding trade liberalization to break down monopolies and introduce foreign competitors to markets.
· What is trade liberalization and why is it important in globalization? What is the cause of the negative response to globalization?
For developing countries as a whole, globalization—the process of lowering trade barriers and integrating with the world economy—has been enormously beneficial.
GDP growth rates have been about 2 percentage points higher after trade liberalization. Investment-to-GDP rates have been almost 10 percentage points higher—and sustained for a long time after liberalization. Moreover, this higher growth has contributed to faster poverty reduction in globalizing countries. And there is no systematic relationship between trade liberalization and inequality. In some globalizing countries inequality rose, while in others it fell.
Why then does globalization elicit so much criticism from NGOs and academics, among others? One reason is that the average growth rates hide a huge variation among individual countries. Among major Latin American countries, for instance, the only country that saw a significant increase in its growth rate post-liberalization was Chile; Brazil and Mexico experienced a decline in their growth rates. Similarly, in Africa, with the exception of Ghana, trade liberalization was accompanied by a decline in average growth rates in many countries. It is only in Asia that most countries have seen an increase in growth rates after liberalization. This includes not just the celebrated cases of India and China, but smaller countries such as Bangladesh, Sri Lanka, and the Philippines.
Furthermore, in some of the countries where the growth impact was weak, the employment effects were even more troubling. In Brazil, the regions facing tariff cuts experienced significant drops in formal-sector employment and earnings. These effects became more pronounced 20 years after liberalization.
Finally, for trade liberalization to have its intended effect, a host of other factors have to be in place. Africa still has a huge infrastructure deficit, which means that even if there is trade reform, it remains difficult to ship manufactured goods to ports. India has seen very little growth in manufacturing employment—even though it has a large number of low-skilled workers. The level of education of these people is woefully poor: The share of second-graders in rural public schools who could not read a single word was 80 percent.
Read the full article about globalization by Shanta Devarajan at The Brookings Institution.