Growth, international inequalities, and poverty in a globalizing world

Journal of Policy Modeling 29 (2007) 635–641

Growth, international inequalities, and poverty in aglobalizing world

Dominick Salvatore a,b,∗a Fordham University, USA and Shanghai Finance University, PR China

b Department of Economics, Fordham University, NY 10458, USA

Available online 7 May 2007

JEL classification: C22; C87; D31; E14; E22; E47

Keywords: Globalization; Per capita income; Growth; International inequalities; Poverty

1. Introduction

The past two decades have witnessed an increasingly rapid tendency toward globalization inthe world economy and this has significantly affected the rate of economic growth, internationalinequalities, and poverty around the world. A great deal of controversy exists, however, on whetherglobalization has resulted in increased or reduced world inequalities and poverty. In this paper, Iwill first present data on per capita incomes in the world’s major economic areas and then examinethe pace of economic growth, and the evolution of international inequalities, and poverty aroundthe world during the past two decades-and-half of rapid globalization.

2. Per capita incomes in developing countries

Table 1 shows the population and the per capita income of various countries or groups ofcountries in 2005. The table shows that the average per capita income of all low and middle income(developing economies and former communist countries) was only $1746 in 2005 ($720 and $1740for India and China, respectively) as compared with $32,893 in high-income developed economies.

Using exchange rates to convert the per capita income of various countries into dollars withouttaking into account differences in the purchasing power of money in each country, however, greatlyexaggerates differences in per capita incomes between high- and low-income economies—andthis exaggeration is larger the lower the level of development of the country. A measure of real per

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636 D. Salvatore / Journal of Policy Modeling 29 (2007) 635–641

Table 1Population and per capita incomes, 2005

Groups of countries/country Population (millions) Income per capita

Dollars PPP

Low and middle income 5426 1746 5151Sub-Saharan Africa 741 745 1981East Asia and Pacific 1885 1627 5914

of which, China 1305 1740 6600South Asia 1470 684 3142

of which India 1095 720 3460Europe and Central Asia 473 4324 9142Middle East and N. Africa 304 2241 6076Latin America and Caribbean 551 4008 8111High-income economies 1011 32,893 32,524World 6438 6987 9420

Source: World Bank Databank (2007).

capita income based on the purchasing power of the currency in each nation indicates, for example,that the real per capita income of China was $6600 in 2005 rather than $1740 (see Table 1) and thatof India it was $3460 rather than $720. Thus, per capita incomes adjusted for purchasing-powerparity (PPP) greatly reduces measured differences in standards of living between high- and low-income countries; nevertheless, they remain very large, especially for Sub-Saharan Africa (wherethe PPP per capita income was only $1981 in 2005). Income inequality within each country isalso generally much higher in low- and middle-income developing countries than in high-incomedeveloped countries (see Campano and Salvatore in this Special Issue).

3. Globalization, economic growth, and development

Growth is the most important economic goal of countries today. The best available measureof growth in standards of living that will also allow comparisons across countries is in terms ofpurchasing power parity (PPP) per capita incomes. Since we are interested in examining growthand development during the recent period of rapid globalization (1980–2005), we will comparethe growth of real PPP per capita incomes in various countries and regions in the period 1980–2005with the 1960–1980 pre-globalization period. Of course, the rate of growth and development of anation depends not only on globalization but also on many other domestic factors, such as politicalstability, improvements in education and labor skills, the rate of investment and absorption of newtechnology, the rate of population growth, and so on. But globalization is certainly a crucialingredient to growth.

For example, no one forced China to open up to the world economy, but without such anopening China would not have received the huge inflows of capital and technology and it wouldnot have been able to increase its exports so dramatically, and thus it would not have been ableto achieve its spectacular rates of growth during the past two decades. A possibly strong positivecorrelation between globalization and growth does not, of course, establish causality, but it wouldrefute the assertion on the part of anti-global groups that globalization has caused increasedinequalities between high-income advanced countries and low- and medium-income developingcountries during the past two-and-a-half decades.

D. Salvatore / Journal of Policy Modeling 29 (2007) 635–641 637

Table 2Weighted yearly average real PPP per capita income growth in various regions, 1960–1980, 1980–2000, and 2000–2005

Region 1960–1980 1980–2000 2000–2005

East Asia and Pacific 2.9 6.1 8.0South Asia 0.6 3.0 5.9Asia 2.0 4.9 7.1China and India 1.7 5.8 8.0Middle East and North Africa 3.2 0.2 3.6Sub-Saharan Africa 1.3 −0.6 3.7Latin America and Caribbean 3.1 0.1 1.9Developing world 2.1 3.1 4.9Developing, excl. China and India 2.5 0.7 2.4Europe and Central Asia – 1.1 5.2High-Income Countries 3.9 2.3 2.0World 2.5 2.9 4.4


Table 2 gives the growth in the weighted yearly average real PPP (with base 1993) per capitaincome in various regions and countries of the world in the periods 1960–1980, 1980–2000, and2000–2005. From the Table we see that East Asia and the Pacific did well during the 1960–1980period and spectacularly well (especially China) during the 1980–2000 and 2000–2005 periods.South Asia did poorly during 1960–1980, well during 1980–2000 and very well during 2000–2005.The Middle East and North Africa did well during the 1960–1980 period, badly during 1980–2000period (because of political turmoil and wars), and well during 2000–2005. Sub-Saharan Africadid not do well during the first period, actually became poorer during the second (because ofpolitical instability, corruption, wars, droughts, and AIDS), but growth resumed during the lastperiod (2000–2005). Latin America did well during the first period, but per capita incomes werepractically stagnant during the second period (so that the 1980–2000 period can be consideredlost decades as far as economic development is concerned as a result of political and economiccrises and overregulated economies). Growth did resume during 2000–2005 in Latin Americaand the Caribbean but at a moderate level. Europe and Central Asian low and medium incomecountries did poorly during the 1980–2000 period and well during 2000–2005.

The developing world as a whole did reasonably well during the first period and even betterduring the second and third periods. Eastern Europe did very well during the first period but suf-fered a significant decline in average per capita incomes during the second period as a result of theeconomic collapse associated with the fall of communism and the required economic restructuringthat followed it. High growth, however, did take place from 2000 to 2005. Overall, only Asiagrew faster than industrialized countries and sharply reduced inequalities vis-a-vis industrializedcountries as a group during the 1980–2005, especially from 2000 to 2005. Latin America didpoorly and so inequalities with respect to industrialized countries increased from 1980 to 2005,while the Middle East and North Africa did poorly from 1980 to 2000, but better than high-incomecountries from 2000 to 2005. Sub-Saharan Africa and actually became poorer in an absolute senseduring the second period with respect to the first and so they fell further behind industrializedcountries and developing Asia. Only from 2000 to 2005 did growth resume and actually exceededthat of the high-income countries. Note that during the two decades (1980–2000) only Asiaamong developing countries did better than the high-income countries, while during 2000–2005,all groups of countries grew faster than high-income countries, except for Latin America.


Table 3Weighted yearly average real PPP per capita income growth in rich countries, globalizers and non-globalizers, in the1960s, 1970s, 1980s, 1990s, 2000s

Group of countries 1960s 1970s 1980s 1990s 2000s (2000–2005)

Rich countries 4.7 3.1 2.3 2.2 2.0Globalizers 1.4 2.9 3.5 5.0 5.9Non-globalizers 2.4 3.3 0.8 1.4 2.1


Table 3 shows more directly the correlation between globalization and growth. It shows thatthe growth of real per capita PPP GDP increased sharply from 1980 to 2005 for the developingcountries that did globalize and far exceeded the average growth of rich countries and that ofnon-globarisers. The globalizers are the 30 or so countries (Argentina, China, India, Mexico,Philippines, and Thailand among the largest) that did open up to international trade – as definedby the World Bank – during the last two decades and-a-half. The growth of rich countries was veryhigh and much higher than for globalizers and non-globalizers during the decade of the 1960s butdeclined in each subsequent period. The growth of non-globalizers increased from the decade ofthe 1960s to the decade of the 1970s, but then it declined sharply during the 1980s and was lowerthan for globalizers and rich countries during the 1990s. Only during from 2000 to 2005, did thegrowth of non-globalizers match the relatively low growth of rich countries. It seems that growthcan be rapid without liberalization and globalization at the beginning of the growth process whenthe national government can mobilize and direct resources toward the development process, but asthe nation develops economic efficiency associated with liberalization and globalization becomeincreasingly important.

Although there is no perfect correspondence between non-globalizers and the poorest countriesin the world, most non-globalizers do include the poorest countries in the world. Thus, inequalitiesin per capita incomes and standards of living did increase between non-globalizers, on the onehand, and globalizers and rich countries, on the other. But the cause of this increased inequalitycannot be attributed to globalization, as such. Indeed, it was the globalizers that grew fast while thenon-globalizers regressed or stagnated. The only criticism that can be levied against globalization,as a process, is that it did not permit the poorest countries in the world to also participate in thebenefits in terms of economic efficiency and growth in living standards that globalization madepossible. This is a far cry from globalization being itself the cause of the increased inequalitiesbetween the rich and the globalizing developing countries on the one hand, and the poorestdeveloping nations, on the other, as claimed by the opponents of globalization. This generalconclusion is confirmed by Dreher (2006) for a different definition of globalization and data set.

4. Globalization and international inequalities

Another important question that needs to be answered is what effect globalization has hadon international inequalities at the country level and on world poverty at the individual level.Depending on how we chose to measure relative poverty, however, we get dramatically differentresults. One way to measure the evolution of international inequalities is to measure the changein the number of times that the income per capita in the richest country (the United States, ifwe exclude such a small country as Luxembourg) exceeds the income per capita in the world’spoorest country, in the 10th poorest country, or in the 20 poorest countries as compared with the


Table 4Ratio of real PPP per capita income in rich and poor countries, 1960–2005

Year In U.S. relative topoorest country

In U.S. relative to 10thpoorest country

In the 20 richest countries relativeto the 20 poorest countries

1960 48.3 27.6 23.01970 47.1 31.0 26.21980 47.4 31.3 25.71990 51.6 32.5 30.82000 73.3 44.6 36.32005 65.5 44.2 34.3


20 richest countries in the world over time. Based on this measure, the United Nations (1999),World Bank (2000/2001), the IMF (2000) and many left-leaning intellectuals, such as Pritchett(1997) and Stiglitz (2002) have asserted that globalization caused or resulted in increased incomeinternational inequalities and poverty in the poorest developing countries during the recent periodof rapid globalization since 1980.

The data presented in Table 4 shed light on this position. The second column of the Table showsthat the ratio of real PPP per capita income in the United States relative to the poorest country(Lesotho) was 48.3 in 1960, 47.1 (Lesotho) in 1970, 47.4 (Tanzania) in 1980, 51.6 (Tanzania) in1990, 71.3 (Sierra Leone) in 2000, and 65.5 (Burundi) in 2005. Thus, according to this measure,national income inequalities have indeed increased significantly from 1960 to 2000, but declinedsomewhat from 2000 to 2005. To avoid the problem of outliers, the third column of Table 4 showsthat the ratio of real per capita PPP income in the United States relative to the 10th poorest country(Guinea-Bissau) was 27.6 in 1960, 31.0 (Nigeria) in 1970, 31.3 (Bhutan) in 1980, 32.5 (Burundi)in 1990, 44.6 (Zambia) in 2000, and 44.2 (Zambia) in 2005. Thus, again international inequalitiesseem to have increased, except from 2000 to 2005. Finally, the same conclusion can be reachedfrom the last column of Table 3 when inequalities are measured as the ratio of the top 20 countriesto the bottom 20 countries.

5. Globalization and poverty

A different and more direct method of measuring changes in poverty around the world is tomeasure the change in the number of poor people. That is, instead of measuring internationalinequalities at the country level, we can measure poverty at the individual level. There are twoways of doing this, one utilizes national accounts data and the other uses data from nationalsurveys. Table 5 gives the number of people and the proportion of the total population who livedon less than $1.00 per day at 1993 prices in terms of PPP (which the World Bank uses to definesheer poverty) in various regions and countries of the world in 1981, 1990, and 2002 using datafrom nationally representative household surveys.

The top portion of Table 5 shows that the number of poor people declined from 1.48 billionin 1980 to 1.22 billion in 1990 and 1.02 billion in 2002 (more recent data were not available asof the beginning of 2007). As a percentage of the total population of developing countries, thenumber of poor people declined from 31.7 in 1980 to 26.1 in 1990 and 21.1 in 2002. Although thepercentages of poor people in the world found by different researchers are different (see Chen &Ravallion, 2004; Dollar, 2005; Sala-i-Martin, 2002; Sala-i-Martin, 2006) all conclude that there


Table 5World poverty: number and percentage of people living on less than $1.00 per day, 1981, 1990, 2002

Region/number of poor 1981 1990 2002

East Asia and Pacific 796 472 214Of which China 634 375 180

South Asia 475 462 437Sub-Saharan Africa 164 227 303Middle East and North Africa 9 6 5Latin America and Caribbean 36 49 47Europe and Central Asia 3 2 10Developing world 1482 1218 1015

Excluding China 848 844 835

Region/% of poorEast Asia and Pacific 57.7 29.6 11.6

Of which China 63.8 33.0 14.0South Asia 51.5 41.3 31.2Sub-Saharan Africa 41.6 44.6 44.0Middle East and North Africa 5.1 2.3 1.6Latin America and Caribbean 9.7 11.3 8.9Europe and Central Asia 0.7 0.5 2.1Developing world 40.4 27.9 19.4

Excluding China 31.7 26.1 21.1


was a dramatic decline in the number and in the proportion of poor people during the most recentperiod of rapid globalization since the early 1980s.

Table 5 also shows that the number of poor people in East Asia and the Pacific declined by582 million, of which 454 in China. Table 5 shows that the number of poor people declined by38 million in South Asia (mostly in India) and by 4 million in the Middle East and North Africa,but it increased for the other groups of countries, especially those of Sub-Saharan Africa. For themost part, these were also the countries that failed to globalize and experienced wars, politicalinstability, corruption, droughts and aids. Using instead national accounts data, Bhalla (2002)estimated that the number of poor people declined by much more than indicated in Table 5, butthose estimates now are regarded as excessive by the World Bank and many development experts.

Thus, we can arrive at the general conclusion that relative poverty seems to have increasedaround the world from 1960 to 2000, but declined somewhat from 2000 to 2005 when measuredby average national incomes across nations. Looking at individuals rather than nations as a whole,however, we find that the number of people who live in poverty (defined as those who live on lessthan $1 per day in terms of 1993 PPP) decreased significantly over the past two decades, but mostof this decrease occurred in China – but that is where many of the world’s poor people lived.

6. Globalization, world poverty and global governance

In general, and despite the anti-global complaints and demonstrations, globalization has greatlybenefited all nations and people. This fact is indisputable. Only the nations that did not globalizefaced increased poverty. World poverty is mainly due to internal causes rather than globalization.

Globalization is not the cause of world poverty – without globalization world poverty wouldhave been greater.


What can be blamed on globalization is that it did not reduce world poverty faster and that it hasleft millions of children starving and billions of people in deep poverty. Globalization is neitherethical nor non-ethical; it is devoid of ethical content. It only increases efficiency for those peopleand for those nations that take advantage of it. Efficiency is important but it cannot and shouldnot be all in which we are interested. There are important social, political and ethical aspects thatcannot be left exclusively to the market. The world can hardly be peaceful with millions of peoplefacing stark poverty, starvation and hopelessness. These crucial problems facing the world todaywould not be solved by slowing down the process of globalization.

What is required to solve or at least ameliorate the problem of world poverty would be to reformthe entire international economic and financial system so as to spread the benefits of globalizationmore evenly around the world; that is, without leaving out the poorest countries and the poorestpeople. This can be accomplished by canceling the international debts of the poorest countries,sharply increasing foreign aid (from less than 1/3 of 1% of rich countries’ GDP) and, moreimportantly, opening widely the market of rich countries to exports from the poorest countries.Nothing short of a complete reform of the international economic and monetary system is required.In short, the world faces a problem of governance. The poorest nations and the poorest people aresimply not franchised. They do not have much to say on matters of international economics andfinance. They can only appeal to the humanitarian benevolence of the rich countries.

This is similar to the problem of environmental pollution. While clear antipollution laws existat the national level, very little exists on the global level. Firms are often prohibited by nationalregulations to dispose of harmful waste material at home, but they can do so at little cost in somedeveloping nation. To limit global pollution we need global regulations. The Kyoto protocolrepresents only a small beginning in limiting global pollution and the United States has refused tosign even this limited effort because of the alleged harm that complying with the protocol wouldimpose on the economy. Again, this is a problem of global governance.

Governance thus rises to the top of the agenda for global action. This is the challenge andopportunity for this decade. Without adequately solving the problem of governance, the problemof world poverty, world pollution and world peace cannot be achieved. It would be in the long-termbenefit of rich countries if they agreed voluntarily to enfranchise poor countries and poor people.Only by doing so, we can hope for a more equitable and peaceful world in the years to come.

References

Bhalla, S. S. (2002). Imagine there’s no country. Washington, DC: Institute for International Economics.Chen, S., & Ravallion, M. (2004). How have the world’s poorest fared since the early 1980s? The World Bank observer ,

pp. 141–169.Dreher, A. (2006). Does globalization affect growth: evidence from a new index of globalization. Applied Economics, 38,

1091–1110.Dollar, D. (2005). Globalization, growth and poverty since 1980 (pp. 145–175). The World Bank research observer.IMF (2000, April), World economic outlook. Washington, DC.Pritchett, L. (1997). Divergence, big time. Journal of Economic Perspectives, 3, 3–17.Sala-i-Martin X. (2002, May) The world distribution of income. NBER working paper 8933.Sala-i-Martin, X. (2006). The world distribution of income: Falling poverty and convergence, period. Quarterly Journal

of Economics, 121(2), 351–397.Stiglitz, J. (2002). Globalization and its discontents. New York: Norton & Company.United Nations. (1999). Human development report. New York: Oxford University Press.World Bank. (2000/2001). World development report. New York: Oxford University Press.World Bank. (2007). World Development Indicators. Washington, DC: World Bank.

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Growth, international inequalities, and poverty in a globalizing world