Economic Globalization and its Impact on Poverty and Inequality: Evidence From Pakistan

Proponents of economic globalization view it as a key to future economic development and in general it is considered a positive force for improved quality of life, acceleration of economic growth, efficient allocation of resources and greater productivity enhancements. Whereas, anti-globalization camp argues that it increases poverty and leads to worsening in the distribution of income. Like many other developing countries Pakistan also embarked on a path towards integrating its economy with global economy through liberalizing its investment and trade regimes with the expectation that it will stimulate economic growth and improve the living standards of the poor. This paper attempts to assess the impact of economic globalization on poverty and inequality in Pakistan by focusing on trade liberalization aspect of globalization. Results from Granger causality point out that trade liberalization has played a positive role in employment generation but has had a negative influence on per capita GDP. Overall, our results seem to suggest that globalization while leading to reduction in poverty has at the same time exacerbated income inequality. Lastly, it is contended that if Pakistan wants to reap maximum benefit from economic globalization, it needs to be accompanied with adoption of pro-poor growth policies which emphasize investment in human development and provide a structure for social safety nets for the poor.