Mainstreaming the Key Elements of Economic Integration in the
PRSPs and the Implications for Poverty Reduction in Asia
Jeet Bahadur Sapkota
PhD Candidate, Graduate School of Asia Pacific Studies (GSAPS),
Research Fellow, Global Institute for Asian Regional Integration (GIARI),
Waseda University
September 2008

This paper was presented in the ―Summer Institute on Asian Regional Integration‖ at
Waseda University, Tokyo, August 25-30, 2008, organized by the GIARI for PhD
students from various universities around the world. The author is highly indebted to theprofessors and participants whose comments and suggestions during and after thepresentation have been instrumental for refining the paper. Especially, a sincere thanks
goes to Prof. Chuneko AKAHA for the valuable guidelines and detailed corrections on
the final draft. Additionally, the author earnestly thanks to the Global Institute for AsianRegional Integration (GIARI) Global COE Program for the generous funding to this research
and writing the paper.

Abstract

This paper examines the extent to which the key elements of global economic
integration, such as trade, foreign direct investment (FDI), foreign aid, internationalmigration and international tourism, have been mainstreamed into the poverty reduction
strategy paper (PRSP) of the selected developing countries from Asia. Applying thecontent analysis technique it finds that the trade openness gained the highest priorities
followed by the FDI, and tourism. In addition, to check the real impact of such factors
on poverty reduction, this paper analyzes the quantitative data from the World
Development Indicators (WDI) and Human Development Indicators (HDI). Applying
the multivariate regression analysis method the paper finds international trade,migration and tourism are significant to human poverty reduction. Thus, the first choiceof trade openness in PRSP is quite rationale for poverty reduction in Asia.
(Key words: trade, economic integration, poverty reduction, Asia)ii

1. Introduction
In the discourse of international development poverty has been considered as
an increasingly serious problem and poor countries‘ development plans as well as donor
communities‘ development assistance focus on poverty reduction. Millennium
Development Goals (MDGs) of the United Nations (UN) together with the country
driven Poverty Reduction Strategy Paper (PRSP) of Bretton Woods institutions (IMF
and the World Bank) are the focal point of current international as well as national
development agenda on which all the national and international efforts are streamlined,
particularly in developing countries. In the context of rapidly globalizing world,countries‘ openness towards the rest of the world is one of the most important strategicareas of poverty reduction on which donor communities, business communities,
including multinationals and even for the mass population of the world, has greaterinterest and impacts. Countries‘ openness is the key area that accelerates the process ofglobal economic integration on the one hand and achieving the most desirable
developmental goal of poverty reduction on the other hand. In this context, this study
reviews the PRSPs of selected Asian countries from the view point of global economic
integration as a poverty reduction strategy (PRS). In addition, to check the consistencyof strategic choices with the actual situation, the study tries to find out the impacts oftrade, foreign direct investment (FDI), foreign aid, international migration andinternational tourism on poverty reduction in Asia.
The rest of the paper proceeds as follows. The remaining part of the Section 1
highlights the general background of the study and introduces the working hypotheses,
research questions and objectives. Section 2 discusses on the methodology used with
explanation of the data and the variables. Section 3 presents the results and Section 4
concludes the paper.
1.1

General Background

Poverty reduction is a recent focus as the central goal of international
development. ―Shaping the 21st Century: The Contribution of Development
Co-operation‖ was the first document adopted by the Thirty-fourth High Level Meetingof the Organization for Economic Co-operation and Development (OECD),
Development Assistance Committee (DAC) in which poverty reduction had been given
top priority with definite target. Particularly, ―in terms of economic well-being‖ thedocument placed the foremost development goal as- ―a reduction by one-half in the
proportion of people living in extreme poverty by 2015‖ (OECD 1996). Based on the1

lessons from the past 50 years it was the new policy set forth for the first part of the 21st
century. Consequently, in the same year 1996, the World Bank and IMF introduced theHeavily Indebted Poor Country (HIPC) initiative taking immediate action to help thepoorest, most heavily indebted countries escape from unsustainable debt. The initiative
was design to enable poor countries to focus their energies on building their policy andinstitutional foundation for sustainable development and poverty reduction.
More comprehensively, several initiatives by the World Bank and IMF gave abasic framework for the PRS process in 1999. In January, the World Bank introduced
the Comprehensive Development Framework (CDF) aiming to correct the previous
sector-based development strategy. In September, the WB and the IMF expanded theHIPC initiative to strengthen its focus on poverty reduction, and finally, the PRSP was
introduced in December as a device to ensure the proper use of concessional loan anddebt relief. Furthermore, the MDGs adopted by the UN Millennium Summit in
September 2000 provided more precious objectives and targets for the PRS process.
From the view point of developing countries, PRSP is a modified development
planning document which incorporates the common regional and global interests. In thissense, the key elements of economic integration in the global economy, such as trade,
FDI, foreign aid, international migration, and tourism should be the major issues in
PRSPs. How are the poor countries recognizing these factors as catalyst for poverty
reduction? Among the factors, which are the most integrated in PRSPs and what is theimpact of such factors on poverty? As the PRS approach has been experienced nearly 8
years and many countries are in the process of preparing second generation PRSP, toanswer such questions is useful in placing strategic priority on poverty reduction as wellas the countries toward regional and global economic integration. Below is a briefsummary of the discussion in the current literature on global economic integration (orglobalization) and poverty reduction.
Theoretically, integrating with the global economy opens up national markets
and ensures competition thereby removing inefficiencies and leading to greater growth(Solow, 1956; Swan, 1956).1 Poor countries are generally labor abundant and capital
scarce. Thus, openness, in theory, provides an effective means of poverty reduction
1

However, this argument of the neoclassical theory of trade has been questioned by number of
economists. For example; Rodrik (1988) and Devarajan and Rodrik (1989) argue that scaleeconomies and imperfect competition are prevalent in developing countries which complicate thewelfare impact of trade liberalization. The theoretical possibility of a welfare-reducing impact fromtrade liberalization in the presence of imperfect competition and increasing returns to scale has been
pointed out in other studies such as Ocampo and Taylor (1998) and Eaton and Grossman (1986).
2through enhanced employment of labor, attraction of capital and lower of commodity
prices. Market forces ensure that specialization takes place in areas of comparativeadvantage. According to the endogenous growth theory, trade liberalization can impact
on income and long-run growth through (i) scale effects-increasing the size of market;(ii) allocation effects-efficient reallocation of scarce resources; (iii) spillover effects-the
diffusion and integration of technological knowledge; and (iv) redundancy
effects-reducing the unnecessary waste of resources (Grossman and Helpman, 1990,
1991).2
Empirically, the World Bank (2002) study of Globalization, Growth andPoverty came up with three significant findings. First, poor countries with around 3
billion people broke into the global market for manufactures and services. The study
noted a shift in developing country exports over a twenty year period from a
predominant share of primary commodities to that of manufactures and services. This
successful shift of exports, an element of global integration, generally supported poverty
reduction. The study found examples of this integration among Chinese provinces,
Indian states, and the countries of Bangladesh and Vietnam. The second finding
concerned inclusion of marginalized people and area both across countries and withinthem. One of the most disturbing global trends of the past two decades was that a
number of countries (with around 2 billion people) were in danger of becoming
marginal to the world economy. Incomes in these countries had been falling, poverty
had been rising, and they participated less in trade than they had 20 years earlier. The
world therefore has a large stake in helping countries integrate with the global economy
and facilitate the greater inclusion of countries in globalization today. A third issue
identified by the World Bank study concerned standardization or homogenization.
Opinion polls in diverse countries revealed the concern that economic integration would
lead to cultural or institutional homogenization despite the fact that societies that were
fully integrated into the global economy differed enormously with culturally andinstitutionally.
The study concludes that ―nations that integrated (i.e., those that opened up tointernational trade and investments) grew more rapidly than advanced nations (thusreducing the gap with advanced nations) during the past two decades, while nations that
did not globalize grew less rapidly than the integrated and advanced nations, thusincreasing their gap with respect to the others‖.
2

For the details of each effect of endogenous growth theory of trade liberalization see alsoRivera-Batiz and Romer (1991), Lucas (1988), Rebelo (1991), Jones and Manuelli (1990), and Barroand Sala-i-Martin (1995, Chapter 8).
3

Many independent scholars also favor global economic integration with theirempirical studies. For example, Urata and Yokota (1994) concluded that the policy toliberalize trade and foreign direct investment, as well as antitrust laws and other policies
to strengthen competition in the domestic market are important for bringing about anincrease in productivity and which in turn has importance in economic development.
Similarly, Dollar and Kraay (2004) claim that ―the evidence from individual cases andcross-country analysis supports the view that globalization leads to faster growth andpoverty reduction in poor countries‖. Similarly, Barraud and Calfat (2008) found intheir case study of Argentina that ―The overall impact of trade liberalization on the poor
does not appear to be negligible. More interestingly, poverty falls and there is areduction in inequality among the poor‖.
Some of the positive features of global economic integration stem from theeffects of increased competition, and some of the negative aspects can be offset throughinternational agreements on policy or through the development of new international
institutions. Thus, while globalization can cause international conflicts, it can also
contribute to their containment through the beneficial effects of competition and thepotential of global cooperation to treat economic and other threats facing the planet(Intriligator, 2004).
On the other hand, while most economists have tended to view globalization asa basically benign phenomenon, it may have extremely painful consequences. Somegroups of people and some nations (including advanced ones) may suffer economic
damage (Gomory and Baumol, 2004). More specifically, Stiglitz (2004) noted that incases where the globalization process had not been managed well it resulted in adverse
effects on growth and even led to increased poverty in some countries. Nissanke andThorbecke (2006) raised the issue as to whether the present form ofglobalization/integration was conducive to the growth-cum-structural transformation
process, which was capable of engendering and sustaining pro-poor economic growthand favorable distributional consequences. Contrary to the income convergence thesis,
they claim that it is possible for globalization to generate adverse distributional
consequences at the national and global levels which could slow down or even reverse
the present poverty alleviation trend.
In sum, global economic integration can contribute much to poverty reduction
both directly and by accelerating growth. With respect to poverty reduction, thecontributions of redistributive policies are very likely to be less than the contribution ofgreater access to markets, more competitive insurance and financial markets, and4

improved institutions. The potential effect of greater international economic integration
on poverty reduction, however, is limited by domestic policy failures in developing
countries and also by continued protectionism, particularly in developed countries(Srinivasan and Wallack, 2004). On the background of these different views andresearch findings, this study tries to find out the impact of key elements of economic
integration on poverty reduction in developing Asia.
1.2

Working Hypotheses

Based on the above research findings and theoretical considerations, this paper
assumes openness has a positive impacts on poverty reduction. Specifically, the study
tests the following hypotheses.
International trade, FDI, foreign aid, international migration and tourism issues
are in the mainstream of national development policy (i.e. in PRSPs) of
developing countries in Asia.



1.3

These elements have significant positive impact on poverty reduction in theregion.

Research Question

To examine the above hypotheses, this study tries to answer the following twoquestions;

East Asia and South Asia alone are home to two thirds of the world‘s poor
(Chen and Ravallion, 2008), therefore, their strategies toward solving poverty
problems are vital for the progress on peace and prosperity not only for theregion but also for the world. As regional and global economic integration ismoving faster and faster over time, poor countries‘ appropriate response
towards this issue could lead to rapid poverty reduction and greater integrationof the world economy. How are Asian countries responding to these trends?
Are the key elements of economic integration appropriately mainstreaming intheir PRSPs?



The second research question is related to the relationship between theeconomic integration and poverty. As we discussed, the existing literature isinconsistent about the relationship between the key elements of global
economic integration and poverty reduction. The relationship could be different
for each region and even for each country. What relationships exist actually
between the elements of economic integration and the human poverty in5

developing Asia? Are these factors significant to reduce poverty?
1.4

Objectives

The main objective of this study is to find out how appropriately the policy
makers in the low income countries in Asia are prioritizing their policy options to attainthe most desirable developmental goal of poverty reduction. More specifically, theobjectives of the paper are as follows:

To assess the degree of mainstreaming of the key elements of ―economic
integration‖ in the national PRSPs in developing Asia.



To analyze the relationship and impacts of such elements with human poverty.

To make some policy recommendations to the national governments and to thedonor communities concerned.

2. Methodology
The study follows two different methodologies to identify the degree ofmainstreaming of the key elements of economic integration in PRSPs and therelationships and impacts of such elements on poverty. Firstly, it uses content analysis
technique to assess the qualitative data. Secondly, it undertakes multivariate regression
analysis to analyze the quantitative data.
2.1

Content Analysis

One of the appropriate techniques for the first research objective is content
analysis, a systematic, replicable data reduction technique (Stemler, 2001) that can beused to determine the presence of a particular concept (in this case, trade, FDI, foreignaid, international migration, and tourism) within a body of text (in this case, thepublished PRSPs from Asian countries). Ekbom and Bojo (1997), inspired by earlier
works by Bojo and Chee (1995), World Bank (1996) and Loksha (1996), elaborated anelementary filter of 13 criteria grouped into five sequential sections when analyzing
how environmental issues had been mainstreamed into World Bank Country Assistance
Strategies (CAS). Applying this filter in undertaking a ―content analysis‖ of 34 CAS,
they concluded that not only had environmental issues made some inroads into CAS
documentation, but that the filter was, moreover, a useful analytic tool for reviewing theextent to which the issues had been successfully incorporated. Modified versions ofEkbom and Bojo‘s assessment framework were then appropriated and adapted by Bojo
and Reddy (2003) who employed four criteria, measured on a four-point scale, to6evaluate the extent to which environmental factors were integrated into 50 Full andInterim PRSPs.
Assessment Methods: This paper amends the framework adopted by Bojo and Reddy,in effect substituting the environmental variables with the key elements of economic
integration globally and regionally (see Box 1 for the key elements), and employs
content analysis techniques to analyze the extent to which the elements of economic
Box 1: Key elements of economic integration
Among a number of elements and issues related to global and regional economic integration, thisstudy selects the 5 following key elements:
1.

Trade: Exports and imports of goods and services, which is considered as the central
issue of economic integration.

2.

Foreign Direct Investment (FDI): Flow of international capital within the country,
which depends on the range of openness policy and investment environment.

3.

Foreign Aid: Development aid from the donor community to the low income country is
another element which could be the catalyst not only for international development but
also for global/regional economic integration.

4.

International migration: Movement of people crossing boarders, especially fromunderdeveloped countries to developed countries is another factor that helps theprocess of economic integration. It also helps in cultural exchange and integration.

5.

Tourism: Tourism sector, especially flows of tourists from developed countries todeveloping countries, contribute to the recipient‘s economy and also facilitates cultural
integration such as international migration.

integration have been integrated into the eleven PRSPs of East and South Asian
countries as follows.








Criterion 1 (Issue): Were economic integration related issues included in theanalyzed PRSPs?
Criterion 2 (Causal Links): Were the causal linkages between economic
integration and poverty related issues analyzed within the PRSPs?
Criterion 3 (Responses): Were economic integration related responses/actions
defined in the PRSPs?
Criterion 4 (Process): Were links between the PRSP formulation process andeconomic integration (regionally/globally) related policy and planning
processes detailed in the PRSP itself?
Each of the four criteria is given a numeric value where; 0 = no mention
 1 = mentioned, but not elaborated
 2 = elaborated
 3 = Best Practice7

This permits an average aggregate score to be computed for each analyzed
PRSP (See Annex 3), values with ranging from 0 (the sector is not mentioned in the
document at all) to 3 (good practice evident on all four counts).
2.2

Multivariate Regression Analysis
When we know from the content analysis which factors of economic

integration received due attention from the national government of low income
countries and from the donor communities, it is worthwhile to assess the impacts ofsuch variables on poverty reduction. To find out the direct impacts of each factor of
economic integration the study employs the multivariate regression analysis techniqueas follows.
Data: Human Poverty Index (HPI-1) for developing countries is taken as the measureof poverty. It is a more comprehensive measure than that of income criteria of $1 perday. HPI-1 is collected from the Human Development Reports from 1998 to 2007/08.
Similarly, trade, FDI, Foreign aid, international migration and the tourism related data
are taken from the World Development Indicators (WDI) online database. Further
explanations of the variables are given in Box 2.
Box 2: Explanation of data and variables:
Eight countries are taken for the quantitative analysis; 4 from each region: East Asia (i.e.
Cambodia, Lao PDR, Mongolia, and Vietnam) and South Asia (Bangladesh, Nepal, Pakistan, andSri Lanka)

Dependent variable: Poverty is the dependent variable, which is represented by the Human
Poverty Index for developing countries (HPI-1). The HPI-1 is taken from the Human
Development Reports from 1998 to 2007/08 published each year by the UNDP.



Independent variables: The independent variables are listed below. All the variables aretaken from the World Development Indicator (WDI) online database.
1.

International Trade: The merchandise trade which is the sum of exports and imports ofgoods and services measured as a share of GDP is taken as the proxy of this variable.

2.

Foreign Direct Investment (FDI): A net inflow of FDI as a share of GDP is taken tomeasure this variable.

3.

Foreign aid: The total aid in percent of GNI is a measure of foreign aid in this study.

4.

Int’l migration: Workers' remittances and compensation of employees received in percent
of GDP is taken to measure the effect of this variable.

5.

International tourism: An international tourism receipt in percent of total exports is
considered to represent this variable.

6.

Growth: Per capita GDP growth rate is also taken to measure the combined effect of therest of the variables that affect poverty.

Note: Detail definitions and explanations of each variable are presented in Annex 2.

8

The model:

The following multivariate regression model is used to analyze the data:3
Pct     1 (Gct )   2 ( Z ct )  --------------------------------------- [1]Where,
P is the measure of poverty (in this case HPI-1); G is the growth (in this case
GDP per capita growth); Z is the other factors that determine poverty in addition to
growth (in this case the 5 variables of economic integration); β1-n is the coefficient that
explains the strength and direction of the impact of the independent variables onpoverty; n is the number of independent variables considered; c is the number ofcountries and t is the number of years that the data cover (in this case n = 11 years, from1995 to 2005);  is the constant; and ε is the error term.
3. Results
3.1

Results of Content Analysis
The rating on the mainstreaming of economic integration in PRSPs issummarized in Table 1 (next page). The following findings stand out from the table andthe analysis. First, there is a considerable variation in the degree of mainstreaming: froma high score of 2.5 (Sri-Lanka) to a low of 0.5 (Indonesia). Countries with a score of 2
or higher are Cambodia, Laos PDR, Mongolia, Maldives and Nepal. While scoresshould not be seen as precise measurements, they do indicate that the level of attention
given to the issues varies considerably. Some variation is legitimate and to be expected.
However, there is no reason to believe that the low scoring countries are free fromconcerns of global economic integration issues linked to poverty.
Second, the average score is about 1.6 on the 0-3 point scale. This is a broad
indicator of the level of attention paid to the aspects of global economic integration. In
the context of many competing issues in PRSPs there may be more or less good reasonsfor not mentioning or elaborating on each issue. It is difficult to make in-depth
judgment on each case. These scores suggest the need for more detailed
country-specific analyses.
Finally, good practices do exist, and this paper provides some examples thatcan serve to inspire future work. As examples below will illustrate, the standard for"good practice" is not extraordinarily demanding, and should be easily achievable if
3This model is used by Jalilian H. and J. Weiss,“Infrastructure and poverty: cross-country evidence‖, In
Weiss and Khan, Poverty Strategies in Asia. The joint publication of the Asian Development Bank
Institute and Edward Elgar Publishing, 2006.

9sufficient attention is given to global economic integration.
Table 1: Summary of scores by country (economic integration into selected PRSPS)S.N.

Country

RegionAverage Rating

1

Sri-Lanka

South Asia

2.5

2

Cambodia

East Asia

2.2

3

Laos PDR

East Asia

2

4

Mongolia

East Asia

2

5

Maldives

South Asia

2

6

Nepal

South Asia

2

7

Bangladesh

South Asia

1.7

8

Vietnam

East Asia

1.5

9

BhutanSouth Asia

1

10

PakistanSouth Asia

0.8

11

Indonesia

East Asia

0.5

Average Score

1.6

For instance, Cambodian case can be considered as a good practice regarding
trade issues. The national government nicely places the trade priorities with recognizing
the sector of comparative advantages, which elaborates as; ―Linking production to
consumption or producers to consumers, trade is a powerful and important catalyst forsocio-economic development. Promotion of trade for Cambodian products has beenamong top priorities. If market outlets are available, investments would flow to
encourage and enhance production of goods and services using the country's naturaladvantages as has happened in the garment industry, and as could be achieved inagriculture, agro-processing, handicraft and other areas.‖ The PRSP further explains thepast initiatives, current challenges and futures steps clearly; ―Various initiatives andreform measures taken to implement it culminated in dynamic export performance andintegration of the country in numerous regional bodies and accession to WTO in 2004.
Government has also successfully negotiated free and/or favorable trade agreementswith many countries. However, there are still many bottlenecks similar to those in
private investment in industries which inhibit growth in this sector. …Various reforms
that RGC will pursue in governance, legal and judicial sector and in public

10

administration, as well as rehabilitation of basic infrastructure, would no doubt
contribute to a better climate for Trade and Investment by private sector.‖
Similarly, Sri Lankan PRSP also exhibits good practice in mainstreaming thetrade issues. The document explains; ―No country has ever been able to significantly
increase the economic well being of its people without succeeding in international trade.
An open, efficient system for trade establishes important linkages between domestic andinternational markets and provides the competitive pressures that spur productive
economic growth.‖ The PRSP emphasizes the increasing opportunities for small andmedium scale enterprises to broaden their markets through international trade. The
document clearly commits to further reforms to eliminate remaining barriers to tradeand specifies the nation‘s strategy as; ―Sri Lanka is well placed to significantly increase
its presence in regional trade in both goods and services. This will begin by building
upon the existing trade agreement with India and the soon to be completed free trade
agreement with Pakistan. It is also important to pursue other markets outside of theregion. An initial step has already been taken to develop improved trade with major
traditional trading partners, such as the EU and US, and plans are being developed toapproach other developed and developing countries for improved market access.‖
Disaggregated analysis of the overall mainstreaming of the economic
integration score into component scores can provides additional insights. However,rather than explaining the score of each of four criterion as explain in section 2.1, thepaper presents the following discussion on the basis of average score gained on the 0-3
point scale shown in Table 2 below.
Table 2: Summary of scores by factors (economic integration into selected PRSPS)
S.No.

Variables

Average Score

1

International Trade

2.5

2

FDI

2

3

International Tourism

1.7

4

Foreign Aid

1.6

5

Donors' Participation

1.2

6International Migration

0.8

Overall average

1.6

There is strong heterogeneity in the issues covered in PRSPs, with trade11

receiving the highest attention demonstrating many good practices, while FDI receives
relatively higher attention with elaboration. Trade and FDI scored 2.5 and 2 respectively,on the 0-3 point scale (Table 2). Tourism, foreign aid and donors‘ participation in PRSP
preparation are often mentioned with some elaboration with the average score of 1.7,
1.6 and 1.2 respectively. Issues of international migration are rarely discussed at length
although a few countries (e.g. Nepal) recognize this as an important tool for poverty
reduction. It received the average score of 0.8.
3.2

Results of Multivariate Regression Analysis

Equation 1 in page 9 is the basis of the regression analysis. Although there area relatively large number of observations for most of the variables, for certain key
variables there are some missing values. The interpolation technique is used to obtainthe missing values. The data set contains 88 observations for 8 countries, 4 from eachregion, East and South Asia. A summary of the data and variables is presented in Table
3 below.
Table-3 Summary statistics of the data
Variable

Obs

Mean

Std. Dev.

Min

Max

Poverty (HPI-1)

88

33.81023

11.2727914

54.1

Growth88

3.76625

2.314638

-1.97

11.55

Int’l Trade88

61.51205

28.75593

26.87

130.73FDI

88

2.578977

2.60009309.71

Foreign Aid

88

8.018523

6.496929

.95

24.55

Int’l Migration

88

4.121023

3.192753

.03

14.8

Int’l Tourism

88

10.58614

7.513661

.56

26.04

Table 4 reports the results of a multivariate regression analysis of theimportance of economic integration for poverty reduction. The result demonstrates thestatistical significance of the overall model as the p-value of the F-test is zero up to fourdecimal places. The R-squared is 0.5955, meaning that approximately 60% of thevariability of Human Poverty Index (HPI-1) is accounted for by the variables in themodel. Note that this is an overall measure of the strength of association, and does notreflect the extent to which any particular independent variable is associated with thedependent variable.

12Table 4 Result of the multivariate regression
Equation

Obs

Parms

RMSE

"R-sq"

F

P

88

7

7.430646

0.595519.87167

0.0000

Coef.

Std. Err.

t

P>|t|

[95% Conf. Interval]

Growth

0.3060575

0.4721785

0.65

0.519

-0.6334296

Int’l Trade-0.2622101 0.0416856

-6.29

0.000

-0.3451513 -0.1792689

0.326239

0.3975539

0.82

0.414

-0.4647685

1.117246

Foreign Aid-0.2427922 0.1966091

-1.23

0.220

-0.6339826

0.1483983

Int’l Migr.

-1.000798

0.3030924

-3.30

0.001

-1.603857-0.3977389

Int’l Tourism

0.462362

0.1318303

3.51

0.001

0.2000611

0.7246629_cons

49.12177

2.431871

20.20

0.000

44.28311

53.96043(HPI-1)FDI

1.245545

Notes: (See Annex 2 for the detail definition and explanation of each variables)

The coefficients for each of the variables indicates the amount of change one
could expect in HPI-1 given a one-unit change in the value of that variable, given that
all other variables in the model are held constant. For example, if we consider the―international trade‖, a decrease of 0.26 in the HPI-1 can be expected for every one unit
increase in international trade, if all the other variables in the model are held constant.
Actually, these are the values for the regression equation for predicting the dependent
variable from the independent variable. Thus, the regression equation to predict the
HPI-1 expressed in terms of the variables used in this study is:―HPI-1‖predected = 49.12 + 0.31(GDP Growth) – 0.26(Int‘l Trade) + 0.33(FDI)– 0.24 (Foreign Aid) – 1.001(Int‘l Migration) + 0.46(Int‘l Tourism)
P value presented in the column P>|t| is the crucial value to test the hypothesesof this study. The variable which has the P value less than the ‗alpha‘ is statisticallysignificant. In the case of 95 percent degree of confidence, value of alpha is 0.05. Thus,
among the 5 variables of global economic integration, only 3 variables—trade,migration and tourism—are found statistically significant on poverty reduction as they
have P value less than 0.05. These three variables are even significant for the degree ofconfidence at 99 percent (in this case the alpha value is 0.01) as their P values are evenfar below 0.01. The rest of the two variables; FDI and foreign aid are found not to besignificant. In addition, per capita GDP growth is also found not to be significant tohuman poverty reduction.
13

The correlation matrix presented in Table 5 further clarifies the interactions
between poverty and the elements of economic integration. Most of the variables(except tourism) have a negative correlation with poverty meaning that an increase in
the independent variables is associated with a decrease in dependent variable, i.e.,poverty. Among the key elements of economic integration, trade has the strongest
negative correlation i.e., –0.66, followed by migration (-0.37), FDI (-0.27), foreign aid(-0.08) and so on. As we see there are no high correlations among the dependent
variables (no more than 0.8 -as a general rule), the effect of multicollinearity is not
significant in this model.
On the basis of these results from the quantitative analysis, it is quite rational
to place highest priority on trade in PRSPs in Asia. However, it is surprising that they
have given the least priority on international migration which is an equally significant
for poverty reduction.
Table 5 Correlation coefficient matrix for poverty, growth and economic
integration proxies (Number of observation used is 88)
Poverty

Growth(HPI-1)

Int’l

FDI

Trade

Foreign
Aid

Int’l

Int’l

Migration Tourism

Poverty(HPI-1)1.0000Growth-0.2465

1.0000

Int’l
Trade

-0.6577

0.54811.0000FDI-0.2689

0.49270.54291.0000ForeignAid-0.08400.05790.37590.34431.0000Int’l
Migration-0.37310.08540.1472-0.0338-0.4326

1.0000Int’l
Tourism

0.23950.17050.09810.08630.5037-0.1770

1.0000

Surprisingly, international tourism, which is statistically significant to povery,
is found to have positive relationship with poverty as its correlation with HPI-1 as well14

as the coefficient in the regression equation is positive. This means an increase ininternational tourism helps to increase poverty. One reason for this controversial result
could be the nature of the tourism variable. The total receipt from international tourism
is based on the percent of exports, and if export growth is greater than the growth of
tourism receipt, then the reported tourism variable declines. Actually, WDI online data
set provides the data based on exports for tourism receipts, rather than based on GDP.
On the other hand, the correlation matrix above shows the very low correlation (i.e.
0.098) between the trade and tourism variables, which also seems illusive as tourism ismeasured on the basis of exports. In fact, this is quite a controversial result and further
research is necessary on this particular issue.
4. Conclusion
Among the five selected key elements of global economic integration, tradeissues are mainstreaming well in the selected PRSPs in Asia. It covers a wide range ofinternational trade issues and good elaborations and analysis are found regarding thecasual linkage between the trade issues and poverty reduction, among others. In
addition, quantitative analysis has shown that international trade is one of the mostsignificant elements for poverty reduction. In this point, applied policy matches the
economic reality that exists in Asia.
Similarly, international migration has a significant impact on human poverty
reduction. However, this issue received the least priority attention in PRSPs. It might bedue to the developed countries‘ reluctance to accept migrant workers and the donor
community‘s discouragement to put this issue in priority. The paper strongly
recommends that the labor market should be open especially for unskilled workers fromdeveloping countries to industrialized countries. It is one of the most important issues
for global economic integration which also contributes directly on cultural and social
aspects of global and regional integration. This paper strongly recommends including
this issue in PRSPs with high priority and also to open up their labour market indeveloped as well as relatively developed countries.
There are a several issues for further investigation. Firstly, the positivecoefficient of tourism factor in regression equation as well as correlation matrix is hardto accept. This might be due to the inappropriate selection of proxy for the variable.
Search for appropriate proxy can give the reliable result. Secondly, FDI and foreign aid
found insignificant to poverty reduction, which is undesirable. In low income countries,
FDI could be insignificant on poverty reduction. However, by nature and its aim,
15

foreign aid should be significant, where foreign aid still contributes the large proportionof their national budget. Finally, the major limiting assumption of the cross-country
analysis is that the findings are assumed to be universal regardless of countries‘
uniqueness. Therefore, specific country cases are recommended for further research.

References
1.

Barraud A. and G. Calfat (2008), Poverty Effects from Trade Liberalization in Argentina,
Journal of Development Studies, 44.3:365–383.

2.

Barro, R. J. and X. Sala-i-Martin (1995), Economic Growth, Advanced Series in Economics.
New York.

3.

Bhagwati J. and T. Srinivasan (2002), Trade and poverty in the poor countries, American
Economic Review, 92.9: 180–183.

4.

Bojo J, and N. Chee (1995), Environmental concerns in country assistance strategies, OfficeMemorandum (Mimeo), AFTES. The World Bank: Washington, DC.

5.

Bojo J. and R. Reddy (2003), Status and Evolution of Environmental Priorities in the Poverty
Reduction Strategies, Environmental Economics Series, The World Bank, Washington DC.

6.

Chen, S. and M. Ravallian (2008), The developing world is poorer than we thought, but noless successful in the fight against poverty. Policy Research Working Paper 4703,
Development Research Group, The World Bank, Washington DC.

7.

Devarajan, S., and Rodrik D. (1989), Trade Liberalization in Developing Countries: Do
Imperfect Competition and Scale Economies Matter? American Economic Review, 79, 283-87.

8.

Doha Declaration 2005, Second South Summit, 12-16 June 2005, Doha, Qatar.

9.

Dollar D. and A. Kraay (2004), Trade, Growth, and Poverty, The Economic Journal,
114.493: F22 - F49.

10.

Eaton, J., and Grossman. G. (1986), Optimal Trade and Industrial Policy under Oligopoly,
Quarterly Journal of Economics, 382-405.

11.

Ekbom A. and J. Bojo (1997), Mainstreaming environment in country assistance strategies,

16

Discussion Paper No. 1, Environment Group (Africa Region),The World Bank: Washington,
DC.
12.

Gomory, R. and W. Banmol, (2004), Globalization: Prospects, Promise and Problems, The
Journal of Policy Modeling, October 2004.

13.

Grossman, G. M., and E. Helpman (1990), Comparative Advantage and Long-Run Growth,American Economic Review, 80: 796-815.

14.

——— (1991), Innovation and Growth in the Global Economy, Cambridge, Massachusetts:
MIT Press.

15.

Intriligator, M. (2004), Globalization of the World Economy: Potential Benefits and Costs anda Net Assessment, The Journal of Policy Modeling, October.

16.

Jones, L. E., and R. E. Manuelli (1990), A Convex Model of Equilibrium Growth: Theory and
Policy Implications, Journal of Political Economy, 98: 1008-38.

17.

Kanji N, and S. Barrientos (2002), Trade liberalization, poverty and livelihoods:
understanding thelinkages, IDS Working Paper 159. Institute of Development Studies:

Brighton.
18.

Loksha V. (1996), Integrating environmental and social issues into CAS: East Asia and SouthAsia, Regions (Mimeo), ASTEN, The World Bank: Washington, DC.

19.

Lucas, R. E., Jr. (1988), On the Mechanics of Economic Development, Journal of Monetary
Economics, 22: 3-42.

20.

Nissanke M. and E.

Thorbecke (2006),

Channels and Policy Debate in the

Globalization–Inequality–Poverty Nexus. World Development Vol. 34, No. 8, pp. 1338–1360.
21.

Ocampo, J. A., and L. Taylor (1998), Trade Liberalization in Developing Economies: Modest
Benefits but Problems with Productivity Growth, Macro Prices, and Income Distribution,
Economic Journal, 108: 1523-46.

22.

OECD (1996), ―Shaping the Shaping the 21st Century: The Contribution of Development
Co-operation‖, adopted by the Thirty-fourth High Level Meeting of the OECD, DAC.

23.

——— (2003), ―Rome Declaration on Harmonization 2003", adopted by The High-Level
Forum of OECD, DAC Rome, Italy, February 25, 2003.

24.

——— (2005), ―Paris Declaration on Aid Effectiveness 2005‖, adopted by the High Level
Forum of OECD, DAC, in Paris, France, March 2, 2005.

17

25.

Oksanen T. and C. Mersmann (2003), Forests in poverty reduction strategies—an assessmentof PRSP processes in sub-Saharan Africa. In Forests in Poverty Reduction Strategies:
Capturing the Potential, Oksanen T, Pajari B, Tuomasjukka T (eds), European Forestry Inst.
Proceedings No. 47.

26.

Ravallion M. (2001), Growth, inequality and poverty: looking beyond averages, World
Development 29.11: 1803–1815.

27.

Rebelo, S. (1991), Long-Run Policy Analysis and Long-Run Growth, Journal of Political
Economy, 99: 500-521.

28.

Reimer J. (2002), Estimating the poverty impacts of trade liberalization, Policy ResearchWorking Paper 2790, the World Bank, Washington.

29.

Rivera-Batiz, L. A., and P. M. Romer (1991), Economic Integration and Endogenous Growth,
Quarterly Journal of Economics, 106: 531-55.

30.

Rodrik, D. (1988), "Imperfect Competition, Scale Economies and Trade Policy in Developing
Countries". In Trade Policy Issues and Empirical Analysis, eds. Baldwin. R., University of
Chicago Press, 109-137.

31.

Sachs J. and A. Warner (1995), Economic Reform and the Process of Global Integration,
Brookings Papers on Economic Activity 1: 1–118.

32.

Solow, R. (1956), A contribution to the theory of economic growth. Quarterly Journal of
Economics, 70: 65-94.

33.

Srinivasan, T.N. and J.S. Wallack (2004), Globalization, Growth, and the Poor, The Economist,
152.2: 251-72.

34.

Stemler S. (2001), An overview of content analysis. Practical Assessment, Research and
Evaluation 7(17). Retrieved: Sep. 9, 2008 from http://PAREonline.net/getvn.asp?v=7&n=17.

35.

Stiglitz, J. (2004), Globalization and Growth in Emerging Markets. The Journal of Policy
Modeling, October 2004.

36.

Swan, T. (1956), Economic growth and capital accumulation. Economic Record, 32: 334-61.

37.

Urata S. and K. Yokota, (1994), Trade Liberalization and Productivity Growth in Thailand.
The Developing Economies, 32.4: 444-459

38.

Weiss J. and H. A. Khan eds. (2006), Poverty strategies in Asia: a growth plus approach, theAsian Development Bank Institute and Edward Elgar Publishing, 291pp. (Chapter 4 Jalilian H.
18and J. Weiss, ―Infrastructure and poverty: cross-country evidence‖, pp124-44.
39.

Winters L. A. (2000), Trade, trade policy and poverty: what are the links?, Centre for
Economic Policy Research, Discussion Paper No. 2382. London.

40.

World Bank. (1996), Integrating environmental issues into CAS, DEC (Mimeo), The World
Bank, Washington, DC.

41.

——— (2002), Globalization, Growth and Poverty: A Review of International Evidence,
Washington DC.

All

PRSPs

are

obtained

from

the

World

Bank

povertynet

website<http://www.worldbank.org/poverty/strategies/index.htm>, except Nepalese PRSP which is obtained
from the National Planning Commission (NPC), Government of Nepal.

19

ANNEX 1. List of countries having PRSP and PRSP progress reports as of Aug 31, 2007

Source: http://siteresources.worldbank.org/INTPRS1/Resources/boardlist.pdf Accessed in Sep. 10, 2008.

20

ANNEX 2. Definition of terms and variables
1

Human Poverty Index for developing countries (HPI-1): The human poverty index fordeveloping countries (HPl-l) concentrates on deprivations in three essential dimensions ofhuman life already reflected in the HDI-longevity, knowledge and a decent standard of living.
The first deprivation relates to survival-the vulnerability to death at a relatively early age. The
second relates to knowledge-being excluded from the world of reading and communication.
The third relates to a decent living standard in terms of overall economic provisioning.

In constructing the HPI-l, the deprivation in longevity is represented by the percentage of
people not expected to survive to age 40 (P1), and the deprivation in knowledge by thepercentage of adults who are illiterate (P2). The deprivation in a decent living standard interms of overall economic provisioning is represented by a composite (P3) of threevariables—the percentage of people without access to safe water (P3I ), the percentage of
people without access to health services (P32) and the percentage of moderately and severely
underweight children under five (P33).
The composite variable P3 is constructed by taking a simple average of the three variables P3I,
P32 and P33, Thus

P3 

P31  P32  P33
3

Following the analysis in chapter 1 of this Report and technical note 1 in Human Development
Report 1997, the formula of the HPI-l is given by:1

HPI  {(P13  P23  P33 )} 3
(Source: Human Development Report 1998)

2

GDP per capita growth (annual %): Annual percentage growth rate of GDP per capita basedon constant local currency. GDP per capita is gross domestic product divided by midyear
population. GDP at purchaser's prices is the sum of gross value added by all resident
producers in the economy plus any product taxes and minus any subsidies not included in thevalue of the products. It is calculated without making deductions for depreciation of fabricatedassets or for depletion and degradation of natural resources.
(Source: World Bank national accounts data, and OECD National Accounts data files. In WDR
online database)3

Merchandise trade (% of GDP): Trade is the sum of exports and imports of goods and21

services measured as a share of gross domestic product.
(Source: World Bank national accounts data, and OECD National Accounts data files. In WDR
online database)4

Foreign direct investment, net inflows (% of GDP): Foreign direct investment are the net
inflows of investment to acquire a lasting management interest (10 percent or more of voting
stock) in an enterprise operating in an economy other than that of the investor. It is the sum ofequity capital, reinvestment of earnings, other long-term capital, and short-term capital as
shown in the balance of payments. This series shows net inflows in the reporting economy.
Data are in current U.S. dollars.
(Source: International Monetary Fund, International Financial Statistics and Balance of Payments
databases, and World Bank, Global Development Finance. In WDR online database)5

Aid (% of GNI): Aid includes both official development assistance (ODA) and official aid.
Ratios are computed using values in U.S. dollars converted at official exchange rates.
(Source: Development Assistance Committee of the Organization for Economic Co-operation andDevelopment. In WDR online database)

6

Workers' remittances and compensation of employees, received (% of GDP): Workers'
remittances and compensation of employees comprise current transfers by migrant workers
and wages and salaries earned by nonresident workers. Workers‘ remittances are classified as
current private transfers from migrant workers who are residents of the host country torecipients in their country of origin. They include only transfers made by workers who havebeen living in the host country for more than a year, irrespective of their immigration status.
Compensation of employees is the income of migrants who have lived in the host country forless than a year. Migrants‘ transfers are defined as the net worth of migrants who are expected
to remain in the host country for more than one year that is transferred from one country toanother at the time of migration.
(Source: World Bank, Global Development Finance, and World Bank and OECD GDP estimates.
In WDR online database)

7

International tourism, receipts (% of total exports): International tourism receipts are
expenditures by international inbound visitors, including payments to national carriers forinternational transport. These receipts include any other prepayment made for goods orservices received in the destination countries.
(Source: World Bank, Global Development Finance, In WDR online database)

22

ANNEX 3. The extent to which the key elements of economic integration are
mainstreamed into the PRSPs in Asian countries.
Countries/

Trade

FDI

Regions
East Asia

Foreign

Int’l

Aid

Migration

Tourism

Participation

Total
Average

2.6

2

1.6

0.2

2.2

1.2

1.6

Cambodia

3

2

3

0

3

2

2.2

Indonesia

1

1

0

0

1

0

0.5

Lao PDR

3

2

3

0

3

1

2

Mongolia

3

2

1

0

3

3

2

Vietnam

3

3

1

1

1

0

1.5

2.4

2

1.6

1.3

1.3

1.3

1.6

Bangladesh

3

2

1

2

1

1

1.7

Bhutan

2

2

1

0

1

0

1

Maldives

2

3

1

2

2

2

2

Nepal

2

2

3

2

2

1

2

Pakistan

2

1

1

0

0

1

0.8

Sri Lanka

3

2

3

2

2

3

2.5

2.4

2

1.6

0.8

1.7

1.3

1.6

South Asia

Total Average

23