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GLOBALIZATION AND AGRICULTURE.

LECTURE 15, AHEED COURSE INTERNATIONAL AGRICULTURAL TRADE AND POLICY
TAUGHT BY ALEX F. MCCALLA, PROFESSOR EMERITUS, UC DAVIS APRIL 7, 2010 UNIVERSITY OF TIRANA, ALBANIA

Lecture Courtesy of Professor Colin A. Carter UC Davis

Globalization- what is it? Is it new?

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Globalization: "a movement in the direction of a greater [economic] integration" Is Globalization New? When did globalization begin? J. Williamson & K. ORourke (2000) argue:
There is plenty of evidence that international economic links were closer in the 19th century than in the 20th century; esp. 1870-1914 they studied global price convergence (for traded goods such as spices & grains & for wages) & found capital flows, transport technology & immigration fostered convergence.

Mixed Views
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Today, some view globalization as a process that is beneficiala key to future world economic development& also inevitable & irreversible. Others regard it with hostility, even fear, believing that it increases inequality within & between nations, threatens employment & living standards. Are some countries hurt by globalization?

Globalization & Rural Poverty

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Gates Foundation recently announced a strong focus on agric. to raise productivity of poor farmers to alleviate global poverty; according to W Bank, about 40% of worlds population (2.6 B) live on < $2/day of these 1.4 B live on <$1.25 official poverty line (extreme poverty);

in 2008 the W Bank reported that the incidence of poverty in the world is higher than past estimates have suggested. In Sub-Saharan Africa 50% of population subsists on $1.25 a day or less. In South Asia, the % living below the $1.25 poverty rate has decreased from 60 to 40 % from 1981-2005, but the absolute number of desperately poor people did not decline; there are some 600 million in that category.

Does trade promote growth?

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Empirical work by Sachs/Warner & Dollar/Kray finds that trade does promote growth. A country like S. Korea is often used as an example
Share ag in GDP % Labor in agric Per cap Income $US 1970 24% 49% $249 1980 13% 32% $1,598 1990 7% 17% $5,886 2000 4% 10% $9,770 2008 3% 7% $27,600 (PPP)

Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies brought greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago. 4 Asian tigers: Hong Kong, Singapore, S. Korea & Taiwan.

But Not for Everybody

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By contrast, in the 1970s & 1980s when many countries in Latin America & Africa pursued inward-oriented policies, their economies stagnated or declined, poverty increased & high inflation became the norm. The crises in the emerging markets in the 1990s & the 2008 world financial crisis have made it quite evident that the opportunities of globalization do not come without risksrisks arising from volatile capital movements & the risks of social, economic, and environmental degradation . The succession of crises in the 1990sMexico, Thailand, Indonesia, Korea, Russia, & Brazilsuggested to some that financial crises are a direct and inevitable result of globalization. Skeptics of globalization focus on effects of globalization on income inequality (see debate between L. Pritchett & Sala-i-Martin). {e.g., in China incomes of richest 10% are 22 times bigger than the incomes of the poorest 10% (ratio in US is 16 & is 40 in Argentina)}.

there is rising within country inequality there is rising across country inequality but a) & b) do not imply that global inequality is rising

Gini coefficient measures income inequality. 0 indicates perfect equality and 100 perfect inequality.
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China = .33 in 1980, .47 in 2004 India = .36 Mexico = .46

Brazil = .57
Canada = .32 US = .45

EU = .31

WTO good or bad?

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Anti-globalists are particularly critical of the WTO they claim it is as anti-democratic it can dictate to US or EU citizens rules to protect endangered species or to keep food safe it can stop

govt's in poor countries from providing cheap generic drugs to its citizens.

The WTO's anti-democratic powers they claim comes from the organization's new dispute resolution procedures. The strengthening of these procedures was a notable achievement of the Uruguay Round & constitutes one of the main differences btwn. WTO & GATT.

Under the new rules, governments cannot block the finding of a WTO dispute panel.
Countries who have broken rules must either change their policies, pay compensation to the injured party, or face trade sanctions. If Respondent country doesnt comply then retaliation by Complaining countries is legal

(e.g., EU hormone beef led to tariffs on chocolate & cheese; EU banana case led to tariffs on coffee makers &
French wine; US internet gambling case & US cotton case led Complaining countries to threaten to ignore intellectual property rights).

However, the WTO is an inter-governmental organization & changes in the WTO rules is by

"consensus", which requires unanimity every one of the 142 members has a veto

Pros v Cons of Globalization

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Pros: freedom to choose; econ. growth; consumer benefits; reduces waste due to rent seeking; encourages tech. progress; may lead to higher social spending. Cons: may not spur growth; leads to greater income inequality; jobs are lost to poor countries; plays into hands of rich country capitalists; poor countries get poorer; diverts resources from infrastructure & social services.

Asian Myth?
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Asian myth (see A. Young & P. Krugmans who demonstrate that the rate of

productivity growth of the Asian Tiger economies was only average, as a result of which these economies quantitative advantage in growth of inputs of investment & labour ensures much more rapid growth that economies with higher rates of total factor productivity growth but much lower rates of input growth).

Source: Alwyn Young

Some Questions
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Will/does Globalization need to go further? (Note Tom Friedmans comments on globalization & the financial crisis - the end result of this financial crisis will be more globalization not less- the strong companies buy the weak ones.) What was the role of globalization in the 2007-08 food crisis? Doesnt globalization bring international trade, financial speculation, climate change, & poverty? Unregulated markets cannot protect food security, according to The Catholic Register; The food crisis maybe the first major crisis of globalization, according to the UNs World Food Program

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Washington Consensus (broad recommendations

The IMF, the WTO, & the World Bank are institutions that represent the global economy & world public opinion is not strong behind these institutions. But they preach the following principles: Fiscal policy discipline; Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment; Malawi fertilizer subsidies & corn shortage to surplus is being used as a counter example. Tax reform broadening the tax base and adopting moderate marginal tax rates; Interest rates that are market determined and positive in real terms; Competitive exchange rates; Trade liberalization liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; Liberalization of inward foreign direct investment; Privatization of state enterprises; Deregulation abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; and, Legal security for property rights.

Recent Books
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Martin Wolf Why Globalization Works (2005); Discusses both sides of the story; Critics charge globalization of eroding governments, undermining democracy, abdicating to corporationsetc,etc Wolf argues that although trade openness alone may not always lead to sustained growth, the former is necessary for the latter. Wolf also argues that the ability of trade to improve growth may be undermined by poor governance. The example of oil-rich but otherwise largely stagnant Nigeria, its great wealth repeatedly looted by its rulers, is among the most striking ones. Chile is a rare counterexample in Latin America: it has managed to grow at more than 5% for nearly two decades largely because it has reduced its trade barriers to OECD levels while limiting its foreign borrowing to prudent levels and maintaining macroeconomic stability. For Wolf economic liberalization goes hand in hand with political freedomand he sees the one as facilitating the other. Nevertheless, his reliance on good government is one of the weaknesses of his case:

Recent Books - 2
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Erik Reinert How Rich Countries Got Rich & Why Poor Countries Stay Poor (2007) (He accurately shows that most now-well developed countries used protectionist policies during their developmental periods. "Do not do as the Americans tell you to do, do as the Americans did," concludes Reinert) Joseph Stiglitz, "Globalization and its discontents" (2002) ; book heavily criticizes Stanley Fischer from the IMF; Ken Rogoff (formerly IMF) later called Stiglitz a snake oil salesman Dani Rodrik How to Save Globalization from Its Cheerleaders (2007); globalization, in some appropriate form, is a major engine of economic growth; but globalization has come with frequent financial crises and considerable amounts of instability;

Rodrik - cont
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Rodrik argues that the lack of openness is (no longer) the binding constraint for the global economy; we need an alternative approach to globalization, one that focuses on enhancing policy space rather than market access; he argues that the gains to be reaped by further liberalization of markets are meager for poor and rich countries alike. Globalization requires a range of institutional complements in both rich & poor countries in order to deliver its benefits in full and remain sustainable.

In the advanced countries of the North, the complementary measures relate in large part to improved social safety nets and enhanced adjustment assistance. In the developing countries, the requisite institutional reforms range all the way from anti-corruption to labor market & financial market reforms.