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Globalization, Poverty, and All That: Factor Endowment versus Productivity Views

Globalization, Poverty, and All That: Factor Endowment versus Productivity Views

Chapter:
(p.109) 3 Globalization, Poverty, and All That: Factor Endowment versus Productivity Views
Source:
Globalization and Poverty
Author(s):
William Easterly
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226318004.003.0004

This chapter investigates the theoretical linkages between globalization and poverty, but in the context of a neoclassical growth model. It shows that globalization could impact the incomes of the poor. Interesting interactions between trade and factor flows arise from the unconventional productivity view of comparative advantage. The poor country attracts capital inflows under globalization both because capital is scarce in the poor country and because land wealth implies a higher marginal product of capital. Globalization decreases world poverty if income differences are due to differences in factor endowments, while the effects of globalization are null or ambiguous if income differences are due to productivity differences. Trade reduces inequality in rich countries. The trade and inequality relationship requires understanding the productivity differences associated with trade. Globalization is less important for the well-being of the poor than the process of productivity growth.

Keywords:   globalization, poverty, neoclassical growth model, poor country, trade, capital inflows, capital, land wealth, inequality

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