The Impact of Globalization in Poverty

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Improvements in communication, information, transportation and trading technology have chained nations together into interconnected and interdependent communities through the process of globalization. These days, governments and international organizations have increasingly focused their attention on the impact of globalization on poverty. Many economists have argued that globalization has helped advance the wellbeing of the poor and that the positive relationship formed between globalization and poverty through trades and Foreign Direct Investment will lead to growth and development in nations. The assumption is that globalization, through international trade and investment flows, will lead to a speedy economic growth, better living standards, more innovations, advance technologies and new opportunities, thus increasing the chances of eradicating poverty.

However, the reality is far from theory. Evidence have shown that there is a negative relationship between markets causing from globalization and standards of the poor. Many countries, especially developing and third world countries, have not been able to sufficiently reap the benefits of globalization. Globalization today concentrates too much on developed countries, resulting in the uneven distribution of its benefits and drawing the attention away from struggling countries. Internationally, much effort have been placed in expediting free trade flows, particularly in products which are of significance to the developed countries, neglecting other issues like labor market standards and sustainability. Countries like Africa have not achieved macro-economic stability that is vital for growth and poverty alleviation. The assistance from developed countries in the form of foreign direct investments, financial aids, debt relief and more is not constant and does not guarantee poverty reduction. Besides, globalization will upset the local markets because of the increased in foreign consumption. Consumers in developing or third world countries will tend to purchase more imported goods due to the belief that “the grass is greener on the other side of the world”. In addition, the ease in traveling will also allow the upsurge in outflow of currency, thus negatively impact markets and growth. It is therefore easier to be trapped by poverty.

Furthermore, the ‘openness’ and ‘interconnectedness’ of markets due to globalization increases the vulnerability of countries to externalities, particularly international economic conditions like financial crises. Before the dominant presence of globalization, financial crises in any one particular country posed little risk to those of others, according to Forbes. Unfortunately, due to international markets that lend and trade resulting from globalization, this is no longer the case. The health of a country’s financial system is now very much dependent on the health of another countries’ banking systems and vice versa.

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