Introduction
Globalization can be defined as the process of interdependence on the global culture, economy, and population. It is brought about by cross-border trade, which involves the flow of people, information, investments, goods, and services. The economic partnership has been in operation for centuries, but it gained popularity after the 1990s cold war. Poverty is the state in which an individual, group, or community lacks financial resources or is below the minimum standard of living. It is because of the low-income level that they are incapable of handling basic needs such as medical attention, suitable housing, healthy food, and clean water. The criteria for measuring poverty levels vary from one country to another. In developed countries, poor individuals have incomes below the average income.
In the current research, I concentrate on analyzing the relationship between globalization and poverty through its effect on increasing and reducing poverty. My interpretation of the topic is that there is a significant relationship between poverty and globalization as the world has changed significantly in terms of growth and poverty. However, this is based on my understanding, as various researchers have argued differently on the topic. Some have portrayed the significance of globalization in alleviating poverty, while others have shown the negative effect of globalization in promoting poverty. My theory is based on the changes that the world has been experiencing in recent times, where globalization brought positive and negative effects on poverty. A literature review of various materials from researchers from different backgrounds provides the relationship between the two.
Globalization and poverty have a comprehensive perspective in their analysis. I will focus on major themes that portray its effect on reducing and increasing poverty. The subthemes of increasing poverty include global capitalism, income and wealth inequalities, illicit financial outflows, and bribes. The subthemes on increasing poverty include global value chain (GVC), foreign direct investment (FDI), and international trade. I will use fishbone analysis to investigate globalization’s impact on poverty.
Globalization in Increasing Poverty
Globalization promotes various factors that increase poverty in society. It has extended poverty levels by introducing methods through which few individuals benefit themselves while most suffer poverty consequences. Various researchers have identified the ways in which globalization has significantly increased poverty. I will base my argument on how different authors have portrayed the effect of globalization on various economies and its impact on increasing poverty.
Global Capitalism
Globalization has given rise to global capitalism, an economic system that unites people from various parts of the world to innovate, exchange knowledge and culture. It creates jobs for people who have had problems accessing work. This economic system is anti-democratic in that only a few individuals make rules on how the trade will be carried out. Individuals drive the economy and the political system because of having control over most resources. According to Selwyn, individuals benefit when employed in the global value chain (2). The author investigates the claim by analyzing various reports and secondary data on the electronic chain in China and garment chains in Cambodia. The outcome of the analysis shows that the chains introduce workers’ poverty.
Selwyn argues that poverty in the era of globalization is because the employer decided to pay the employees a minimum wage and, at the same time, subject them to a harsh working environment as a strategy to accumulate capital (3). The author bases his arguments on the Marxian concept, which mainly focuses on the dimension of capitalism. This guides the employees’ wages, and they are paid a significantly low wage compared to their productivity. Capitalism exploitation covers more ground in that it also includes the subordination of labor to capital. This promotes misuse of workers resulting in their physical degradation. In my perspective, the author believes that the Global value chain has resulted in significant degradation of workers, thereby promoting poverty.
Selwyn’s assumption is based on the two industries, the garment factory in Cambodia and the electronic industry in China. The author shows that employees are subjected to intense pressure to meet very high targets (Selwyn 12). Despite their efforts in accomplishing these targets, they are subjected to low wages that make it challenging to meet their individual and basic human needs. Additionally, they work overtime with the same intense pressure only to receive an insignificant increase in their overall pay. The author shows that Cambodian employees are at a higher risk of emotional degradation because the overtime pay cannot fulfill their personal needs (Selwyn 12). However, in China, workers work overtime to meet their individual needs. This makes it challenging to improve their living standards. The analysis of Selwyn implies that globalization has resulted in a global chain that negatively affects the employees’ standards of living through low wages that are insignificant even when handling personal needs.
Income and Wealth Inequalities
Globalization has resulted in wealth inequalities in various global economies, which increased poverty levels. Most countries have adopted the trade strategies that lead to the breakdown of trade barriers resulting in integration among nations. From my personal view, removing trade barriers promotes trade and alleviates poverty levels. However, the global value chain has resulted in income inequalities because of the varying technological innovations. According to Chaturvedi, the demand for low-skilled labor has neither declined nor increased, leading to inequality levels (61). I extended Chaturvedi’s ideas by searching the world inequality report for a current variation on the level of inequality. The inequality report shows that more than 50 percent of the adult population in the world are poor, constituting approximately 2.5 billion people (Chancel et al. 26). The wealthiest individual in the world constitutes 1 percent and approximately 51 million adults. I perceive this as a very small number considering that the world’s current population is about 7.9 billion. This is a significant challenge as only a few can access basic needs. The above statistics are represented in figure 1 below.
Bayar and Sasmaz utilize a literature review to identify the effect of income inequality on increasing poverty levels. This study is credible as it utilizes a literature review method from a wide perspective. The researchers used nine European countries in their investigation, solidifying the application of their findings to the general population. The countries used include Lithuania, Bulgaria, Hungary, Slovenia, Estonia, Poland, Czech Republic, Latvia, and Slovakia. Bayar and Sasmaz argue that these countries established trade liberalization due to increased globalization (258). They implemented measures such as the free flow of goods from one country to another. However, with expanded trade, few groups garnered sizable wealth while other groups remained poor. The income inequality among individuals of these groups significantly enhanced the poverty levels. The conclusion of this research is based on the longitudinal study data that was used, which was from 2005 to 2014, which also provides the credibility of this research.
Illicit Intercountry Financial Outflows and Corruption
I examined the United Nations report regarding the globalization effect of illicit financial outflow to identify its impact on poverty development, especially in developing countries. UNCTAD reports show that as countries get involved with international trade, there are various loopholes that individuals generate to transfer stolen funds from developing countries. This transfer adversely affects the economic performance leading to increased poverty (UNCTAD 9). The reports show that this effect creates a challenging environment as economic growth is positively associated with poverty reduction. Individuals living in an environment that fosters business activities benefit from trade expansion that results from infrastructural development. However, the funds that could have been used to improve the infrastructure, such as roads, are looted and transferred to other countries, making it a double theft.
UNCTAD based its research on Africa because it is a region affected by extreme poverty. I use this article to gain insights into the effect of illicit financial transfer as the organization operates from a global perspective and has a wide variety of researchers. Additionally, UNCTAD portrays the impact of this activity as it drains the foreign exchange of African countries and worsens the poverty levels through lack of access to basic needs such as clean water and healthcare. This organization provides critical information regarding globalization and poverty as it has been in operation since 1964. UNCTAD argues that illicit financial transfers are unethical as they pose a challenge to the fight against poverty reduction (62). The finding of this research is credible as the organization is a pioneer in trade and development.
UNCTAD has also extended its research on bribes in large value contracts as an issue that has resulted from globalization (63). The report shows that African countries have various policies for enacting growth and development strategies. These developmental projects include infrastructural development and major explorations such as fossil fuels and minerals. With globalization, multinational companies have come forward to take these contracts, and influential people in the government tend to take this opportunity to award the contract to companies that have to provide a good offer. Despite having policies that help manage corruption and bribery, globalization has made it easy for these people to propagate.
Poverty Reduction
On the other hand, globalization has played a critical role in reducing poverty. Various strategies that result from globalization include the global value chain, foreign direct investment, and international trade. Through these factors, I believe that poverty can be handled significantly if the respective government enacts proper measures. I will use the views of various researchers in presenting this section and their arguments to portray the impact of globalization on reducing poverty.
Global Value Chain
The enlargement and growth of the high-value food export chain and its impact on the expansion of rural household well-being in emerging markets and developing nations remains debatable. Various proofs portray the positive impact of the value chains in enhancing the living conditions of the individuals in the rural areas. I argue this point centering on the domination of the high-valued export chain by certain companies that have involved local farmers in the contracts. The chain is formed from the integration of the smallholder farmers or the estate workers. Van den Broeck and others use Senegal as their case area by examining the effect of income on the horticultural sector (99). The researchers conducted the study using panel data from 2006 to 2013, which was done in two phases and involved 255 households. Van den Broeck et al. show that the investment in the horticultural sector began in 2003 at the Senegal River Delta (99). This justifies their panel study as they used the seven-year period, which incorporated the first periods of investment and a decade after the horticultural investment.
In this period, four horticultural companies were set up to manage the export of these products. The wages in this sector expanded significantly, and it covered approximately 42% of the households. To portray the positive effect of this project, Van den Broeck et al. utilized a regression model. Furthermore, they showed a variation in the income distribution by comparing this industry’s value chain to other sectors. Table 1 below shows the variation in income in various sectors. Their finding suggests that from 2006 to 2013, the value chain of the horticultural industry promoted poverty reduction in this region by approximately 30%. The key source of reducing poverty levels in this region is above average wages. The wage significantly increased the household income of the poor by more than 53%, which is more than double the income they used to make. The researchers’ comparison with other economic sectors in the region shows that the global value chain in the agricultural industry significantly reduces poverty.
The conclusion derived by Van den Broeck et al. is supported by the extreme poverty line of 2011. From their analysis, I can claim that the development of the global value chain in the horticultural industry in Senegal has significantly resulted in employment, reducing the poverty level in the Senegal River Delta compared to other regions in the country. The employment of Senegalese on the farms and the conditioning centers has promoted their living standards hence reducing the poverty levels (Van den Broeck et al. 99). In my personal view, the wages from this industry are high enough that it can reduce poverty in the region. Global capitalism in other parts of the world, such as India and Cambodia, has resulted in significant poverty levels as the employers’ benefits form the value chain. At the same time, workers work tirelessly to receive a minimum wage (Selwyn 12). The validity of Van den Broeck et al.’s research is enhanced by the mode of the study utilized by the researchers. The researchers used a panel study and reinforced their outcome with other industries in the region.
In De Blasi’s study, Tanzania has adopted the global chain value strategy that involves the horticultural industry (9). The country uses this value chain to cultivate crops that are exported to various parts of the world. The program has created a significant emphasis on reducing rural poverty. The involved exporters are individuals with a high profile in both the society. However, they are monitored to ensure the employees’ well-being is maintained. This helps in handling the global capitalism where the poor continue to suffer despite providing a substantial impact on the development of the employers’ welfare.
However, the research shows that this area requires significant policy measures as workers face exploitation challenges. It is imperative to note that the global value chain in agriculture significantly impacts developing countries. Nonetheless, governmental intervention requires to ensure that employees are not mistreated through exploitation and low wages. The author portrays that the horticultural value chain has significantly improved the living condition of the rural people in Tanzania, as most of them were living below the minimum standard of living. From the above analysis of the authors’ argument, the global agribusiness chain is essential in eliminating poverty in sub-Saharan Africa.
The limitation of this method is that it is hugely dependent on the European market demand. Changes in this market significantly affect the living standards of the rural people; hence it is not a sustainable method for managing poverty in sub-Saharan Africa. Therefore, it is necessary to identify the global value chain in other areas of the economy to promote poverty eradication. The research credibility is supported by the literature review analysis and the fieldwork conducted by the researchers. The literature review shows that the global value chain of horticultural products is significant in managing the poverty level in rural areas.
Foreign Direct Investment (FDI)
FDI is a cross-border investment that is a result of globalization. It is a type of investment where an investor in a different geographical location invests in a given country (Ngo 44). My argument is grounded on the importance of investment in creating employment, infrastructure, and other significant amenities that help eradicate poverty in the economy. I present various arguments that researchers have postulated regarding the effect of FDI in lowering poverty levels in the economy.
According to Ngo, FDI associated with poverty is grouped into direct and indirect effects (44). The direct effect is the way FDI has a significant impact on improving the living standards of the poor. The indirect effect is the role of FDI in promoting economic growth, which is essential in improving the livelihood of the individuals, specifically the poor. The direct effect is the significant aspect of FDI through the generation of work channels and poverty reduction techniques (Ngo 44). Ngo examined the two products by focusing on the spillover and capital contribution of the foreign direct investment. Focusing on its effect from a local perspective provides the relationship between poverty eradication and the FDI. This relationship shows how FDI develops the economy by introducing jobs to the locals. In the process, wages and income are generated that promote the living standards of the poor. The finding of this research is essential in providing critical information to the policymakers towards enhancing various strategies that will enable the attainment of the development goals.
The researcher utilized Vietnam as a case area since the country has exhibited significant growth in the current years. The conclusion drawn from this study is that FDI significantly drives economic growth in Vietnam, promoting poverty eradication in this region. Vietnam is among the developing counties as it has developed an economic integration which has promoted an open economy in this region. Statistics from the General Statistics Office of Vietnam (GSO) show that the economy of Vietnam has experienced an approximate 8 percent increase per year since 1995. Furthermore, the country has significantly reduced the poverty rate from 58 percent in 1994 to about 7 percent in 2015 (Ngo 44). FDI is identified to be the leading cause of growth in the economy of Vietnam. The annual growth of GDP from 1995 to 2015 is approximately 15 percent (Ngo 44). The revenue generated from the FDI companies, specifically the exports, was about 75 percent of the GDP in 2015 (Ngo 44). Figure 2 below shows the poverty rate reduction in Vietnam from 2005 to 2015.
Ngo based the assumption on the relationship between increased FDI, economic growth, and decreased poverty level. The credibility of the author’s argument is based on the analysis which supports the findings. The foreign direct investment has resulted in a causal relationship where jobs are created, which later improves workers’ living standards. Additionally, the author strengthens the argument through the literature review, highlighting that FDI is measured based on labor creation, productivity, and capital channels (Ngo 45). Despite the variables having a significant correlation, they portray varying impacts on poverty and local economies.
The author shows that FDI can be channeled in various ways that positively impact the economy. For example, the government can use the generated capital from the FDI can be used by the government in redesign different economic sectors that promote basic program distribution, such as access to quality health, which supports the wellness of the poor (Ngo 44). Furthermore, the spillover effect is essential because the firm channels the local economy’s productivity, which favors growth and development. Ngo provides empirical evidence that supports the profitability of the local firms from the FDI generated by the international companies, which significantly promotes growth and reduction of poverty among the workers.
I extended the research by checking the inflow of the FDI into sub-Saharan Africa. It is a vital globalization resource since the region is negatively impacted by increased poverty. On 21st March 2018, African Continental Free Trade Agreement (AfCFTA) was developed by a union of forty-nine countries. The target of this union is to remove the trade barriers that hinder economic integration hence promoting FDI. The union focuses on enhancing trade in both the region and the rest of the world. Exports in this region have increased significantly from 6.5 US trillion in 2000 to 19.6 US trillion in 2018 (Anetor et al. 1). This accounts for approximately a 200 percent increment in trade. The FDI inflow into Africa has also increased from 41.39 US billion in 2017 to 45.9 US billion in 2018. The FDI inflows in sub-Saharan Africa increased from 28.04 US billion in 2017 to 31.6 billion in 2018 (Anetor et al. 1). This analysis shows that globalization has promoted trade in this region through FDIs and open trades.
Ancestor et al. investigates the effect of foreign trade, foreign aid, and the FDI on reducing poverty in sub-Saharan Africa (1). However, since my focus on the region is on the FDI, I selected arguments that mainly provide the relationship between FDI and poverty. Anetor and others reviewed materials on the effect of FDI on reducing poverty. The research also utilized 29 sub-Saharan countries incorporating data from 1990 to 2017 (Anetor et al. 6). The research outcome shows that the FDI does not significantly reduce poverty in the sub-Saharan region (Anetor et al. 6). However, from my perspective, the findings of this research are limited because the researchers utilized aggregate data instead of disaggregated data. Furthermore, the researchers clearly state that it was challenging to collect data regarding the effect of FDI on certain sectors.
However, I find this research significant because it provides critical information on the area of FDI from three perspectives. First, the research provides vital information on the impact of the FDI on poverty reduction in various countries of sub-Saharan Africa. The analysis of the FDI in this study is done on a general basis, making the research unique. The research evaluated the effect from a broad perspective without considering the income levels. Secondly, the research does not consider the measure of poverty, such as gap analysis but the human development index, which focuses on the standard of living, education, and life expectancy. Lastly, the model used in the data analysis is a special type of Ordinary Least Square (OLS) that considers the effect of the serial correlation.
Topalli and others investigated the effect of the FDI in reducing poverty in the western Balkan countries, namely Kosovo, Albania, Republic of North Macedonia (RNM), Bosnia and Herzegovina, and Serbia (129). The FDI in these countries is different from the FDI in sub-Saharan Africa in that it is mainly composed of multinational companies. This FDI is distinct in that it has a momentous impact on driving economic growth and development. The authors show that this type of FDI has significantly enhanced poverty reduction in these areas despite having a more vulnerable economic performance than other European countries. Topalli et al. solidify their findings on the impact of FDI in enhancing growth through a literature review. This research provides a critical evaluation of using multinational FDI to drive economic growth and promote poverty reduction. My view is that if the same can be applied to sub-Saharan Africa, poverty can be alleviated at a fast rate.
Trade Share and International Trade
Globalization has paved the way for international trade as it provides ways in which SMEs create jobs that promote people’s living standards in society. Significant studies have shown the effect of globalization on promoting international trade that later enhances economic growth, which reduces poverty (Zameer et al. 1). My perception is that expanding the international trade increases employment among the locals, which subsequently increases their well-being because of the wages and salaries generated from this section. I will present arguments from various authors who provide a critical review of the issue.
Zameer et al. study shows that the rate at which China is developing in the current period is intense (1). Globalization opened networks for China as it expanded its international trade, creating many opportunities such as employment. The authors use a literature review to show that China’s trade share results from open trade and international trade. The country has a large trade share, resulting in an increment in income, thereby improving the living condition of poor people in the country (Zameer et al. 1). The author utilizes data from 2007 to 2018 to investigate the effect of globalization on poverty alleviation, and their findings show insignificant results (Zameer et al. 1). My viewpoint is that Zameer et al. investigated this effect from a broader perspective rather than breaking globalization into various aspects. On the other hand, Anetor et al. argue that sub-Saharan Africa has shown a significant impact of international trade in reducing poverty levels (6). The authors show that opening trade barriers has promoted international trade, improving the region’s GDP and creating employment in export zones and other areas.
Wang et al. conducted a study to identify the effect of international trade in reducing poverty levels in china provinces. The researchers used panel data from 2000 to 2017 that focuses on China’s rural and urban areas. Their argument is based on the dimensions of guaranteed expenditure, income gap, and poverty gap. Wang et al. show that international trade promotes poverty reduction in the rural areas significantly more than in the urban areas (7). Rural areas have benefitted from the development of export zones which has created employment hence reducing the poverty levels in these areas. This research provides credible information regarding poverty reduction and international trade in china since it has used panel data and literature review.
I examined the level of poverty in Nigeria, and it had been increasing from 41.3 percent in 1981 to 61.2 percent in 2017 (Adegboyo et al. 2). The country was made the headquarters of poverty because of the increased rate of poverty in the region. The country has 86.9 million poor people with a population of 195.9 million people (Adegboyo et al. 2). This research focused on identifying the effect of international trade on reducing the poverty levels. The findings suggest that there is no relationship between poverty and international trade. My perception of the above finding on the international trade is that the creation of significant measures supplements poverty reduction.
Conclusion
Globalization’s effect on reducing and increasing poverty can be summarized by the following key results:
- Selwyn argues that poverty in the era of globalization has been fostered by global capitalism, where few individuals use others in the name of the global value chain. The workers are paid low wages for high productivity, thereby promoting the employers’ well-being only. The income generated is very minimal that it cannot cater for the workers’ basic needs.
- UNCTAD report shows that corruption, bribery, and illicit intercountry financial outflow are significant factors that increase poverty. Influential members of society utilize governmental opportunities that are supposed to promote the well-being of society for their gain. Funds that could have been used in managing basic needs such as access to clean water and good healthcare are transferred to other countries through corruption.
- Van den Broeck et al. and De blasis show that the Global value chain in areas such as horticultural is significant in reducing poverty in rural areas. Workers get employed in these industries that pay above-average wages, which cater to their living standards, hence promoting their wellness in facing poverty challenges.
- Ngo and Topalli argue that FDI is important in reducing poverty levels. Ngo uses Vietnam and the significant growth that the country has identified since 1995. Topalli argues that multinational FDI is significant in promoting economic growth at higher levels. This is because they drive economic growth and development faster than the average FDI.
- Wang et al. argue that international trade creates employment by opening trade channels and other networks such as export zones. The authors show its effect on reducing poverty in china’s rural provinces
Based on my findings, deconstruction, critical evaluation of arguments, and use of credible resources, it is accurate to conclude that globalization plays a critical role in reducing and increasing poverty. My research question, “To what extent has globalization helped in reducing poverty?” can now be answered that globalization has a significant effect on reducing and increasing poverty depending on how the policymakers in a given place utilize it.
Reflection
I have utilized my theory in the introduction section to provide an informed analysis based on various researchers’ arguments. As a social scientist, I perceived globalization as a general issue. However, the current research has enhanced my understanding of the indirect and direct effects of globalization in reducing and increasing the poverty level in the global economy. I have learnt that globalization has generated various effects such as global value chain, international trade, trade liberations, global capitalism, etc. These effects significantly affect poverty depending on how the effects are managed and handled. I have realized that globalization in reducing or increasing poverty is an extensive area where researchers investigate this issue based on different perspectives. The relationship varies depending on the variables used during the analysis, leading to a disparity in results even in the same region. Through this topic, I have realized that understanding the effects of globalization is also dependent on the area where one is located. Further research must be conducted in this area, considering various aspects such as variation of variables in studies to determine the exact effects. I have realized that research can be done extensively with multiple sources.
Works Cited
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