Do the poor benefit from globalization regardless of institutional quality?

ABSTRACT

Despite significant progress towards the Millennium goals, more than one billion people live on less than 1.25 US dollars per day. Previous research suggests that globalization stimulates poverty reduction, but does not investigate what role institutions play in this relationship. Theoretically, globalization could act as either a complement or a substitute to institutional quality in reducing poverty. We find that the poverty-reducing effect of globalization is stronger when institutions are weak. In particular, increasing social globalization reduces poverty more when corruption is high and democratic accountability is low. Thus, globalization has the power to reduce poverty even in countries with low institutional quality.

KEYWORDS:

• Absolute poverty
• globalization
• institutions
• information flows

JEL CLASSIFICATION:

• D30
• F15
• I32

Additional information

Funding

The financial support from the Swedish Research Council and Torsten Söderberg Foundation (Bergh and Nilsson) is gratefully acknowledged. Mirkina has benefitted from a fellowship funded by the Swedish Institute, which is also recognized with gratitude.