Pinelopi Koujianou Goldberg (Photo credit: Christina Felschen/German Academic Exchange Service)
February 21, 2020
Millions of poor people in developing countries in East Asia have escaped the threat of hunger by leaving the fields to work in factories producing manufactured goods to sell in the West. So, what happens to the prospects of the world’s poor when the West stops buying?
Pinelopi (Penny) Koujianou Goldberg, the Elihu Professor of Economics at Yale and outgoing chief economist of the World Bank Group, has thought deeply about it. Her recent research explores the extent to which cross-border trade reduces poverty in developing countries and the effects the current trade war with China is having on the U.S. economy.
In advance of her Feb. 27 delivery of the 30th annual Kuznets Lecture, Goldberg spoke with YaleNews about how changes in world politics affect approaches to reducing poverty, particularly in Africa — and how Simon Kuznets’ best known theory, about a tradeoff between growth and inequality in the early stages of development, may be affected by recent developments in a world marked by inequality.
Kuznets (1901-1985), a Nobel laureate in economics instrumental in founding the Yale Economic Growth Center, studied the interactions among growth, inequality, and poverty reduction. Goldberg’s lecture is titled “Poverty Reduction in the Era of Waning Globalization.”
Economic growth is often cited as the tide that will lift all boats — and China and India’s roles in reducing total world poverty are often seen as important testaments to that. Yet, many fast-growing Asian countries are also seeing the gap widen between the very rich and very poor. Looking ahead, how do you see the relationship between growth, inequality, and poverty evolving?
It is true that growth is highly correlated with poverty reduction. It would be hard to deny that, even though we have examples where growth did not generate poverty reduction. Usually that happens where growth is associated with huge inequalities. There are plenty of examples, especially in African countries, where wealth is concentrated in the hands of a few. In such cases, even when the tide rises, only very few boats rise. Growth doesn’t trickle down and doesn’t improve the lot of the poor.
Kuznets was most famous for the Kuznets Curve, which posits that there is a tradeoff in the early stages of development between growth and inequality. One point I want to make in the lecture is that we live at a very different time, when the world is changing rapidly, retreating from globalization. Many fear that the old model of export-led industrialization is no longer going to be relevant. And I want to make the point that in this new world, a certain degree of equality and growth may be complements and not substitutes. To put it in a different way, you cannot have growth unless you have a certain degree of equality.