VB: World Bank Study Contradicts Its Free-Trade Income Theories

Hi all,
Just got this from a colleague - might be of interest. It's from the
globalfarmcrisis mailing list.

Carl

>Subject: [globalfarmcrisis] World Bank Study Contradicts Its Free-Trade
Income
>  Theories


>World Bank Study Contradicts Its Free-Trade Income Theories
>By JOSEPH REBELLO
>DOW JONES NEWSWIRES
>WASHINGTON -- A new World Bank study has challenged one of the bank's most
>herished ideas about the virtues of freer trade and investment.
>"Globalization," the study argues, generally widens the income gap between
>the world's poorest people and the richest.
>The study, based on a review of national surveys of household income in 88
>developing countries, concludes that trade and investment liberalization
>promotes income equality only among middle-income and rich countries. Among
>poor countries -- those with per-capita incomes of less than $5,000 a year
>-- it simply increases inequality. "At very low average income level, it is
>the rich who benefit from openness," said the study, conducted by Branko
>Milanovic, the bank's top economic researcher on matters involving poverty.
>"It seems that openness makes income distribution worse before making it
>better." Those findings contradict standard economic theory, which holds
>that freer trade and investment especially benefit poor countries by
>allowing them to increase exports to richer countries and attract
>investment from them. The implication of that theory, Mr. Milanovic says,
>is that income
>inequality in poor countries should decline.
>The findings also contradict the World Bank's official view. For the last
>two decades, the bank has vigorously advocated trade liberalization, often
>making it a condition for loans to poor countries. That has angered
>free-trade opponents, some of whom regularly protest outside the bank's
>headquarters. But the bank's commitment to freer trade hasn't wavered. "A
>widespread anxiety is that growing integration is leading to heightened
>inequalities within countries," the bank said in a report last December.
>"Usually this is not the case. Most of the globalizing developing countries
>have seen only small changes in household inequality, and inequality has
>declined in such countries as the Philippines and Malaysia ."
>But Mr. Milanovic, who compared national household-income surveys from 1985
>through 1991 with those from 1992 through 1997, found significant increases
>in inequality. During that time trade liberalization increased markedly:
>among the countries studied, the average ratio of imports and exports to
>the countries' gross domestic product rose from 62% to 77%. Liberalization
>increased in "all the regions except the most developed," the study found.
>So did inequality. In 1988, the average income of the poorest 10% of the
>people in the countries studied was 30.7% of the average of all people. By
>1993, it had declined to 24.8%. By contrast, the average income of the
>richest 10% was 273.5% of the average of all people in 1988. By 1993, the
>number had risen to 293.4%. "Incomes of the low deciles have tended to fall
>behind the mean income growth; incomes of the top tend to forge ahead of
>the mean," Mr. Milanovic said in the study.