Working Paper
Globalization and Marginalization in Africa

Increased openness is seen by some as a panacea for development while for others it is a recipe for disaster for the poor. Using the example of Ethiopia, this paper discusses some of the key challenges faced by some of the poorest African countries in beneficially engaging in the world economy. Worldwide income growth has largely bypassed many African countries, and substantial parts of their populations risk increasing marginalization. This paper documents the challenges faced by one of these countries, Ethiopia, first by highlighting the impact of a first wave of liberalization in the early 1990s, using the evidence from a rural panel dataset. It was found that while liberalization had some positive effects in this particular period, the benefits were largely confined to households with good assets, not least in terms of geography and road infrastructure. Analysis of the subsequent years shows that access to infrastructure seems to have been causing even further growth and poverty divergence within rural Ethiopia. This evidence suggests that access to better infrastructure and communications is crucial to allow households to benefit from further liberalization and engagement with the world economy. Those without good local infrastructure are unlikely to benefit. Finally, some evidence is presented showing that liberalization has shifted the nature of risks faced by households towards a higher incidence of market related risks, such as sudden output price collapses or input price increases. While it is not possible to infer from this that vulnerability to poverty has necessarily increased, one would need to recognize that these shifts in risk require different responses from households themselves and from policymakers.