Globalization and Inequality in CIS Countries

Vugar Bayramov, Centre for Economic and Social

Development (CESD), Azerbaijan

Commonwealth Independent States (CIS)

Contents

• Theoretical Approaches on correlation between globalization and inequality in CIS countries

• Empirical research on impacts of globalization process on inequality in CIS countries

Last Changes in CIS

• Dramatic rise in inequality in CIS

• Absolute poverty widespread in CIS

• Highest risk of poverty faced by:

• children

• rural households

• excluded groups (e.g. Roma, refugees)

• Working households: largest share of poor

• Non-income poverty growing

• Growing gap between CIS and CEE

• Collapse in living standards

Literature

• Two strands of literature;1. Studying the effect of globalization on growth and

inequality;2. Which factors as the result of globalization affect on

growth and inequality.Literature focuses on CIS economy insist that;• Globalization is to lead to an increase in income

inequality between skilled and unskilled labor (Aghion, 2002)

• Changes in inequality vary greatly across countries which have stepped up their integration into the world economy (Dollar and Kraay,2001)

Two Opposite Approaches

1. Globalization has dramatically increased inequality between and within nations (Mazur, 2000), and in particular that it has marginalized the poor in transition countries and left behind the poorest countries.

2. Globalization reduces inequality between nations (Hecksher-Ohlin Model)

Problems in H.Ohlin Model in Case of CIS Countries

• There are at least two empirical problems with the Heckscher – Ohlin model. First, it predicts that bilateral trade will be greatest when factor endowments are most different (Vanek, 1968). There is little trade between advanced countries such as the U.S. and very poor transition countries such as Tajikstan. A second problem with the Heckscher – Ohlin model is that evidence from examination of specific developing countries following trade liberalization and from cross-country studies does not suggest that trade liberalization

generally reduces inequality in transition countries and in fact frequently suggests that trade liberalization can increase inequality.

GDP Per Capita and Inequality in Context of Globalization Process

• Survey covers transition economy as well indicate that globalization increases equality in low-income countries, such as Tajikistan and Moldova and decrease inequality in developed countries (Milanovich, 2001). Turning point is around $ 6 000 GDP per capita.

Variation in within-country income inequality

1985-1992

1992-2006

Russia 0 ++

Khazakstan ++

Ukraine + +++

Azerbaijan -- +++

Georgia +++

Armenia - ++

Uzbekistan - +

Tajikstan - ++

Turkmenistan + -

Belarus -- -

+++ HIGH INCREASE > 15%

++ INCREASE 7-15%

+ MODERATE INCREASE 2-7%

0 NO VARIATION -2 - +2%

- MODERATE REDUCTION 2-7%

-- REDUCTION 7-15%

--- STRONG REDUCTION > 15%

Source: OECD and Author’s Calculations

Gini coefficient in CIS countriesArmenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyz Republic

Moldova

Russian Federation

Ukraine

Turkmenistan

Tajikistan

28.0

31.7

24.2

31.3

29.1

30.2

26.4

26.6

24.8

31.6

22.5

45.7

35.1

23.3

52.7

32.6

51.3

46.5

38.7

31.3

31.1

46.7

Source; UNDP and Author’s Calculations

GDP Growth and Inequality Rate in the selected CIS countries

Country

Azerbaijan

Kazakhstan

Russia

Georgia

GDP Growth

34 %

16 %

12 %

12 %

Changes in Gini Coefficient

4 point

3.6 point

22.3 point

21,4 point

Openness and Inequality

Researches indicate that after WTO Accession Inequality has been Increased in Kyrgyzstan, Moldova, Georgia and Armenia. All WTO members in CIS apply very low tariffs, for example, average tariff rate is 4.3 % in Georgia, 9.1 % in Russia, 14.3 % Belarus. Other research indicate that leas open countries has low inequality (Kray, 2003) such as Belarus.

Key message from Globalization Process in CIS countries

The key message is that so-called ‘market forces’ cannot guarantee the equitable distribution of benefits and convergence. Not only does government intervention at the domestic level have a role, but so do mechanisms at the regional level. These interventions stem from the theory underlying market failure, positive externalities, and the provision of public goods.

Conclusion• Theories support globalization decrease inequality in CIS

counties have major problems to be empirically approved;• High inequality is observed in more liberalized countries, such as

Georgia and Moldova;• WTO Accession increase inequality in CIS countries such as

Kyrgyz Republic and Armenia;• Poor institutions in CIS countries increase negative impacts of

globalization on inequality in CIS countries;• Trade integration associated with higher growth, growth

associated with poverty reduction, but no evidence of significant link between trade and poverty in CIS countries

• Trade and financial integration associated with rising inequality, higher consumption volatility in transition countries;

• Financial crises hurt the poor and increase inequality in CIS countries;

Thank You

Center for Economic and Social Development (CESD)

Address; Shirin Mirzeyev 76 "a"/ 33, Baku Az1002, AzerbaijanPhone: (99412) 4 971161Fax (99412) 5984431Email; cesd@aztelekom.net Web; http://www.cesd.az