[stop-imf] WB study: Globalization increases inequality

[Robert Weissman]

> Updated August 23, 2002 12:39 a.m. EDT
>
> World Bank Study Contradicts
> Its Free-Trade Income Theories
> By JOSEPH REBELLO
> DOW JONES NEWSWIRES
>
> --------------------------------
>
> World Bank Study Contradicts
> Its Free-Trade Income Theories
>
> By JOSEPH REBELLO
> DOW JONES NEWSWIRES
>
> WASHINGTON -- A new World Bank study has challenged one of the bank's
> most cherished ideas about the virtues of freer trade and investment.
> "Globalization," the study argues, generally widens the income gap
> between the world's poorest people and the richest.
>
>
> The study, based on a review of national surveys of household income
in
> 88 developing countries, concludes that trade and investment
> liberalization promotes income equality only among middle-income and
> rich countries. Among poor countries -- those with per-capita incomes
> of less than $5,000 a year -- it simply increases inequality.
> "At very low average income level, it is the rich who benefit from
> openness," said the study, conducted by Branko Milanovic, the bank's
> top economic researcher on matters involving poverty. "It seems that
> openness makes income distribution worse before making it better."
> Those findings contradict standard economic theory, which holds that
> freer trade and investment especially benefit poor countries by
> allowing them to increase exports to richer countries and attract
> investment from them. The implication of that theory, Mr. Milanovic
> says, is that income inequality in poor countries should decline.
> The findings also contradict the World Bank's official view. For the
> last two decades, the bank has vigorously advocated trade
> liberalization, often making it a condition for loans to poor
> countries. That has angered free-trade opponents, some of whom
> regularly protest outside the bank's headquarters. But the bank's
> commitment to freer trade hasn't wavered. "A widespread anxiety is
that
> growing integration is leading to heightened inequalities within
> countries," the bank said in a report last December. "Usually this is
> not the case. Most of the globalizing developing countries have seen
> only small changes in household inequality, and inequality has
declined
> in such countries as the Philippines and Malaysia."
> But Mr. Milanovic, who compared national household-income surveys from

> 1985 through 1991 with those from 1992 through 1997, found significant

> increases in inequality. During that time trade liberalization
> increased markedly: among the countries studied, the average ratio of
> imports and exports to the countries' gross domestic product rose from

> 62% to 77%. Liberalization increased in "all the regions except the
> most developed," the study found.
> So did inequality. In 1988, the average income of the poorest 10% of
> the people in the countries studied was 30.7% of the average of all
> people. By 1993, it had declined to 24.8%.
> By contrast, the average income of the richest 10% was 273.5% of the
> average of all people in 1988. By 1993, the number had risen to
293.4%.
> "Incomes of the low deciles have tended to fall behind the mean income

> growth; incomes of the top tend to forge ahead of the mean," Mr.
> Milanovic said in the study.
> Write to Joseph Rebello at joseph.rebello@dowjones.com
> <mailto:joseph.rebello@dowjones.com>
> Updated August 23, 2002 12:39 a.m. EDT
>
>