RELATIONSHIP BETWEEN GLOBALIZATION, ECONOMIC GROWTH AND POVERTY REDUCTION IN DEVELOPING COUNTRIES

Abstract

This study investigates the relationship between globalization, economic growth and poverty
reduction using 93 developing countries for the period 2005-2018. Despite the spread of
globalization across countries of the world, poverty reduction is still the main topic of discussion
in the developing world. Although, some regions have made progress in poverty reduction, others
have stagnated or even regressed. The empirical literature has reported mixed findings for the
globalization-poverty nexus and this has made the debate open till date. The mixed findings
emanate from the problems of misspecification error, method of data analysis and proxies to
capture poverty reduction. This study adopts the recent measure of poverty reduction known as
household final consumption per capita to measure poverty reduction, applied a dynamic method
(GMM) as against the static model and updated data on relevant variable as well as utilized an
interactive model to explain the nexus. The baseline model shows that only economic and social
globalization are significant in poverty reduction in the developing countries while political
globalization is insignificant. The interaction of institutional quality with globalization revealed
that at better institutions, are needed for the impact of globalization to be felt by the poor. Although
the empirical result shows that globalization reduces poverty, economic growth is a more effect
tool to reduce poverty in developing countries because the result shows that 1% increase in
economic growth reduces poverty by 0.162% in the baseline model as well as subsequent models
as against a reduction from average globalization of 0.066%. Also, policy makers in the
developing countries should encourage school enrolment, fight against price instability and
increasing population because results reveal they are detrimental to the poverty.