NCPA - National Center for Policy Analysis

Trade Benefits Developing Countries

January 22, 2002

One of the main claims of the anti-globalization movement is that globalization is widening the gap between the haves and the have-nots, benefiting the rich and doing little for the poor. The movement also claims that economic integration is worsening inequality within countries as well as between them. The problem with this new conventional wisdom is that the best evidence available shows the exact opposite to be true.

So far, the current wave of globalization, which started around 1980, has actually benefited the economies and citizens of third world countries:

  • In the developing world, those countries that have participated in international trade have increased their trade relative to income by 104 percent over the past two decades -- compared to 71 percent for rich countries --- while "nonglobalizing" countries actually trade less today than they did 20 years ago.
  • Average annual growth rates for "globalizers" have accelerated from 1 percent in the 1960s to 5 percent in the 1990s -- compared to 2 percent for rich countries -- while "nonglobalizers" saw their growth rates decline from 3 percent in the 1970s to 1 percent in the 1980s and 1990s.

For developing countries that have participated in globalization, higher growth rates have translated into economic equality and higher incomes. For example:

  • In Vietnam, a newly-liberalized trading system has resulted in increased exports of rice, which in turn have increased incomes and decreased the number of Vietnamese living in absolute poverty from 75 percent of the population in 1988 to 37 percent in 1998.
  • Similarly, liberalized foreign trade practices have brought reduced poverty in India, where annual per capita income growth now tops four percent.

In countries like China, Uganda, and Mexico, expanded trade and foreign investment has brought similar benefits, including significantly higher wages and reduced poverty.

Source: David Dollar and Aart Kraay, "Spreading the Wealth," Foreign Affairs, January/February 2002.

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