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The Unremarkable Record of Liberalized Trade: After Twenty Years of Global Economic Deregulation, Poverty and Inequality are as Pervasive as Ever

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Abstract:

Recently, a growing number of policy makers have touted the potential for global economic integration to combat poverty and economic inequity in the world today. On September 24, 2001, for instance, U.S. Trade Representative Robert Zoellick (2001), arguing for new "fast track" trade promotion authority, cited a World Bank study claiming that globalization "reduces poverty because integrated economies tend to grow faster and this growth is usually widely diffused". Yet the empirical evidence suggests that reductions in poverty and income inequality remain elusive in most parts of the world, and, moreover, that greater integration of deregulated trade and capital flows over the last two decades has likely undermined efforts to raise living standards for the world's poor.

While many social, political, and economic factors contribute to poverty, the evidence shows that unregulated capital and trade flows contribute to rising inequality and impede progress in poverty reduction. Trade liberalization leads to more import competition and to a growing use of the threat to move production to lower-wage locales, thereby depressing wages. Deregulated international capital flows have led to rapid increases in short-term capital flows and more frequent economic crises, while simultaneously limiting the ability of governments to cope with crises.

Economic upheavals disproportionately harm the poor, and thus contribute to the lack of success in poverty reduction and to rising income inequality. The world's poor may stand to gain from global integration, but not under the unregulated version currently promoted by the World Bank and others.

The lesson of the past 20 years is clear: it is time for a different approach to global integration, whereby living standards of the world's poor are raised rather than jeopardized.