Globalization, the International Poverty Trap and Chronic Poverty in the Least Developed Countries, CPRC Working Paper No. 30

Abstract

The argument of this paper is founded on an analytical perspective that can be summarized through three basic propositions. Firstly, the phenomenon of chronic poverty is best analysed through examination of the nature of poverty traps. A poverty trap is defined here as a situation in which poverty has effects which act as causes of poverty. There are thus vicious circles, processes of circular and cumulative causation, in which poverty outcomes reinforce themselves. Secondly, the causes of poverty can be identified at different levels of aggregation, running from the micro level (the characteristics of the household and community), up to the national level (characteristics of the country) and up to the global level (the nature of the international economy and the institutional structures which govern international relationships). As a corollary, it is possible to identify poverty traps at different levels of aggregation. Households can get stuck in a poverty trap; communities can get stuck in a poverty trap; countries can get stuck in a poverty trap. Thirdly, globalization, which is understood here as increasing interrelationships between countries, necessitates a shift in the framework for poverty analysis so that poverty at the household, community and national level is analysed in a global context. The coexistence of globalization with chronic poverty does not mean that the former is causing the latter. Rather, globalization implies that what is happening within countries is increasingly related to what is happening elsewhere. It is thus logically impossible to explain chronic poverty solely by reference to household characteristics, or by local and national factors alone. With globalization, the ways in which international relationships are implicated in the processes of circular causation that make poverty persist at the household, community and national level must be integrated into the analysis of chronic poverty. The paper applies this perspective to analyze chronic poverty in the least developed countries (LDCs). It argues that $1-a-day poverty is pervasive and persistent in most LDCs because they are caught in an international poverty trap. At the heart of this trap there are a various domestic vicious circles through which the high incidence and severity of poverty act as constraints on national economic growth, thus perpetuating all-pervasive poverty. The poverty trap can be described as international because an interrelated complex of trade and finance relationships is reinforcing the cycle of economic stagnation and generalized poverty within many LDCs, which is in turn reinforcing the negative complex of external relationships. The paper suggests that the current form of globalization is tightening rather than loosening this international poverty trap