Bank researcher rejects trade openness orthodoxy

17 September 2002

Bank researcher Branko Milanovic has published two papers which shatter the dogmatic construct propping up the Bank’s work on trade. For several years, the Bank’s trade-related loan conditionalities, trade capacity building and research publications such as the Globalization, Growth and Poverty report, have been explicitly based on the work of Dollar and Kraay, Milanovic’s colleagues in the Bank’s Development Economics research group. Dollar and Kraay equate openness with increased growth and poverty reduction. Milanovic charges that this view is based on “systematic ignorance” of the downsides of globalization. The investigation concludes that trade often increases most during mild protectionist phases, and that “it is growth that generally leads to trade-not vice versa.”

Looking more closely at the issue of globalization and income inequality, and using a newly developed database of national household survey data, Milanovic finds that standard economic theory is exactly wrong on the impact of openness on income inequality. Openness, he concludes, “seems to have a particularly negative impact on the poor and the middle-income groups in poor countries.” It is only in the middle and high income countries where openness, properly managed, can become a “good thing” for the poor.

The two faces of globalization: Against globalization as we know it, Branko Milanovic

Can we discern the effect of globalization on income distribution?

“Global intellectual hegemony should be of special concern to developing countries. Their intellectual dependency means that they tend to rely wholly on a handful of sources in the North for data, analysis, explanation, policy and prescriptions.”

Branislav Gosovic, The South Centre