Journal Article

Globalisation and Poverty: How can Global Value Chain Research Inform the Policy Debate?

Published on 1 January 2004

Globalisation and its relationship to poverty reduction is a subject of intense debate among academics, policy actors and street protestors.

Globalisation can be understood as the lowering of transaction costs associated with the international movement of goods, capital, information, culture and (to a lesser extent) labour. A central plank of economic globalisation has been trade liberalisation. This has facilitated complex patterns of global production of goods and services and transformed local markets into global trading arenas. Those who argue that such processes work to reduce poverty state that trade liberalisation and foreign investment enhance efficiency, lower costs, provide access to know-how, and promote growth, thereby raising incomes for the poor (Dollar and Kraay 2000). Thus, a recent World Bank report argued that countries that reduced trade barriers and integrated effectively into the global trading economy also experienced substantial improvements in exports and economic growth (World Bank 2002: 32–39). Among the “globaphiles” dominating the Bretton Woods institutions, making markets work more efficiently through macroeconomic, trade and regulatory reforms is seen as the key policy instrument for fast-track economic growth. The success of many East Asian economies are often cited as examples of the potential gains of adopting such economic strategies (World Bank 1993).

While the economic logic of the “market oriented” globaphiles can be strong, the evidence on the ground, according to many critics, is less persuasive. Strong arguments are put forward by those more sceptical of the inherent benefits of globalisation, that globalisation has resulted in sharply disparate gains across countries (Milanovic 2003). The share of global trade accounted for by the least developed countries fell from 0.8 per cent in 1980 to 0.4 per cent by 2000. Moreover, while the East Asia region, and especially China, has been successful in engaging through trade in the global economy, much of sub-Saharan Africa has been left out. In addition, many of the Asian success stories were either displaying significant levels of growth prior to engaging in a reform process, or maintained considerable protective trade barriers while expanding their exports (Rodrik 2001).

Discussions on the link between globalisation and poverty have largely concentrated on the macro evidence, drawing on country comparative data. There have been, at best, only limited attempts to bring meso (sectoral) and micro (firm, workers and household)level evidence to the debate. This article seeks to address that gap. It draws on findings from various studies undertaken by a project that examined the link between globalised production systems and local employment and poverty impacts. This focused on the export-oriented horticulture, garments and textiles industries in two Asian (Bangladesh and Vietnam) and two African (Kenya and South Africa) countries. The studies use a common conceptual framework in global value chain (GVC) analysis.

A key feature of globalisation is the increasingly complex networks of global suppliers who produce in dispersed locations to the exacting demands of global lead firms. The GVC model focuses on the nature of relationships within such networks. The GVC framework provides a handle on assessing the power of lead firms in structuring the chain, and the consequences of this for the autonomy of other actors in the chain to upgrade (Humphrey and Schmitz 2002). Thus, by problematising the linkage effects in the global economy and emphasising governance, it shows how globalisation affects not only incomes, but also upgrading opportunities in developing countries.

To date, the GVC model has concentrated on the ties between global lead firms (both producers and retailers) and their globally dispersed suppliers. The studies on which this article draws reflect recent attempts to extend the GVC model to employment, incomes and poverty considerations by assessing the impact of engagement in global trade, through global value chains, on local workers. The use of this methodology enables:

  • an analysis of whether engagement in global value chains deliver pro-poor outcomes – not only in terms of income gains, but also with respect to employment stability, income security and working conditions;
  • an understanding of the impact on workers in developing countries of global trends in value chain organisation, including retail concentration and the increasing importance of product, labour and environmental standards; and
  • an examination of the circumstances that generate winners and losers from trade liberalisation.

This leads to the following subsidiary questions:

  • Are workers engaged in global value chains better off than similar workers engaged in non-traded activities?
  • How are the gains from engagement in global value chains differentiated by different categories of workers, and what does this imply for poverty?
  • Can the GVC framework help identify policy levers and measures that promote a pro-poor development strategy?

In addressing these questions, the next section considers the conceptual links between globalisation and poverty. Section 3 provides an overview of how GVCs in the three sectors that this article reports on are structured and the nature of global challenges that they face. Section 4 presents the evidence on the gains from engagement in GVCs for workers, and the winners and losers among workers (and firms) from the process of confronting global challenges and the changes on the structure of the chain. Section 5 considers the policy implications that global value chains analysis provides for debates on poverty and Section 6 concludes.

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This article comes from the IDS Bulletin 35.1 (2004) Globalisation and Poverty: How can Global Value Chain Research Inform the Policy Debate?

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Nadvi, K. (2004) Globalisation and Poverty: How can Global Value Chain Research Inform the Policy Debate?. IDS Bulletin 35(1): 20-30

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Khalid Nadvi

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IDS Bulletin, volume 35, issue 1