Globalization, Economic Growth and SMEs Business its Implication on Rural Poverty in Sindh By Using CGE Model PhD Proffesor Muhammad Aslam Memon Assistant Professor Ali Hassan Halepoto Shah Abdul Latif University Khairpur-Mirs Assistant Professor Zahid Hussain Kazi IBA-University of Sindh-Jamshoro Assistant Professor Faiz M.Shaikh SZABAC-Dokri-Larkana-Sindh-Pakistan Abstract This research investigate the Globalization, Economic growth SMEs business growth and its impact on rural poverty in Sindh by Using CGE-Model. Data wee collected from five Districts of Rural Sindh i.e Jacobabad, Shikarpur, Kashmore, Larkana and Dadu. Data were analyzed by using Computable General Equilibrium Model(CGE). The Global trade analysis Purdue (GTAP) model is used to analyze the possible impact of Globalization on Small and Medium Enterprises sector on Rural poverty, a multi-country, multi-sector applied General Equilibrium frame work. After employing the simplified static analysis framework based on simulations reveal that Globalization has positive impact on decreasing poverty and increasing SMEs business growth opportunities in Rural Sindh. The general inflation rate is decreased and living standard is increased in urban areas. Employment opportunities are also increasing due to the investment made by the FDI and as for as cultural context is concerned, Pakistani people are more reluctant to reduce the traditional cultural barriers. This perspective enables us to identify new challenges in the global economy and to identify the multiple routes through which power and resource inequalities are reproduced within it. More positively, it helps to identify new opportunities and routes to challenging these inequalities. The application of this perspective to the impact of the rapidly-growing economy in real increase in terms of trade. Key Words: Globalization, Economy, CGE Model, Pakistan. 60
Introduction The term came to be used to describe the phenomenon of global flux in which trade as represented by capital and material can move freely across the world with lesser Restrictions with respect to national boundaries. Globalization though it has been essentially connoted with economic issues synonymous with multi national companies (MNC) and their policies that directly or indirectly affect populations across the world has also consequently ushered in an era of change with respect to social and cultural matters inducing a competitive spirit in world culture for the better or worse according to the social fabric of various communities and their flexibility and adaptability. Knowledge, with respect to developments in science and technology is perceived to be the driving force behind globalization and continues to be the decisive factor what with the outsourcing trends of several MNCs to offshore destinations in recent times. Globalization has often been seen as being a subtle factor that tries to undermine welfare policies of governments across the world and individual choice and being elitist in nature but it has also unconsciously forced democratic nations to be more affirmative and inclusive with respect to the betterment of all sections of societies and also to address vital issues like the conservation of the environment. The size-class Structure of SMEs in Pakistan Table 1 Number of enterprises Share portion in % in Pak-Economy Small Mediumsizesized Medium- Large Total Small Large 2002. 600 60 33 693 45 10 5 2003. 711 61 36 808 47 11 4 2004. 714 64 37 815 50 09 5 2005 800 70 40 910 52 09 4 2006 813 72 42 927 51 08 5 2007 1100 78 42 1220 52 09 6 2008 1200 81 45 1326 53 10 5 2009 1260 89 48 1397 54 09 4 Source: Survey 2009-10 SMEs play an important role in modern economies based on knowledge and new technologies because of their flexibility and ability to innovate. A number of academic studies have suggested that the role of SMEs in improving economic performance, reducing unemployment and promoting Revista Română de Statistică - Supliment nr. 3 / 2014 61
flexibility and innovation is extremely important (for example, Wennekers and Thurik 1999; Audretsch and Thurik 2000; Career and Thurik, 2005; Acs, 2007). McMillan and Woodruff (2002) suggested that the role of SMEs transformation of the economy from the centrally planned to market economy. However, some of scholars raised doubts about their role in assisting growth and promoting innovation since SMEs, as they said, are more engaged in their survival on a day-to-day basis (Grey, 1998). The European Union (EU) has the same size-class structure of enterprises. 99% of total enterprises in the EU are small enterprises (0-49 employees), less than 1% is medium-sized (50-249) and only 0.2% is large enterprises (250+). Number of Employees (Situation at the end of period) in Pakistan Table 2 Average number of employees Share portion in % Small Mediumsizesized Total Medium- Large Small Large 2002. 769 277 40 1086 31.65 20.00 48.35 2003. 972 328 76 1376 35.00 19.00 46.00 2004. 214 401 71 686 36.50 19.56 43.94 2005 316 522 61 899 40.00 20.00 44.66 2006 786 554 71 1411 41.00 21.00 45.90 2007 765 576 67 1408 42.00 22.00 46.00 2008 842 600 88 1530 43.00 23.00 44.00 2009 888 611 84 1583 43.5 24.00 43.00 Source: Survey-2010 In the area of employment creation, extrapolation from various sources suggests a possible direct employment effect of Globalization in developing countries of around 26 million jobs in 1997. Estimates of the indirect employment effect of FDI vary widely around a multiplier of 1.6 (i.e. 1.6 indirect jobs for every one direct job). Also, foreign-invested enterprises (FIEs) do generally pay higher wages than domestic companies, and even in low-wage, labor-intensive industries, FIE jobs are often considered better than the alternatives of unemployment or underemployment. However, investments in different industries clearly have different job-creation propensities which policymakers need to take into consideration. There is also an increasing recognition that ways of harnessing FDI to support small and medium enterprise (SME) sectors in developing countries, and associated employment creation, remain under-exploited. (Heien. D, and Wessells, C.R. et al. 1990) regarding employment practices, a key issue is the effect of FDI on female participation in the labor force. On the one hand, greater 62
female employment at FIEs, in addition to helping level the playing field in terms of employment opportunities, results in a direct increase in household income and a higher proportion of income expended on meeting basic family needs. On the other hand, women are often paid less than men in comparable jobs, isolated from mainstream job advancement opportunities, and subject to greater employment instability. Another major issue is that of child labor, with subcontracting often making monitoring difficult, and many children serving as primary household earners. As a second-best solution to banning child labor and providing schooling instead, improved corporate governance on the part of governments, and improved corporate management on the part of companies are crucial. Progress in this area is a function of policy measures and their enforcement, and of greater dialogue and collaboration between the government and the (foreign and domestic) private sector. FIEs can make an important contribution in various ways to human capital formation in developing countries. They can help develop the skills of (often unskilled) workers and often generate training spillovers outside the firm. However, there is only so much that foreign investors can do by themselves and the role of host country policy is paramount, sometimes in collaboration with foreign investors. The economic and social returns to policies aimed at improving basic education levels in developing countries are by now well known, but there is also much potential in the area of promoting targeted vocational training in certain industries in conjunction with foreign investors. One good example at the higher end of the skill spectrum is the collaboration amongst Intel, the government of Costa Rica, and the country s educational institutions to promote vocational training for the electronics sector. Model The Micro simulation method proposed in this paper relationship of both a CGE model and Household model. What distinguish from this model from the work of Janvry et al.1992, Ajitha et at 2004-05 and Bourguignon et al 2000 is its bi directional relationship. The model line Globalization and its impact on economy of Pakistan and poverty on both household and rural spending. 2.1 Description of the Model Model 1: Globalization impact on Small and medium Enterprises in Sindh-Pakistan Model 2: Globalization Rural household, employment opportunities in SMEs Sector and alleviating rural Poverty. Revista Română de Statistică - Supliment nr. 3 / 2014 63
Model 1. Results on Globalization impact on Small and medium Enterprises in Sindh-Pakistan We only performed one simulation to illustrate the approach s contribution. Different simulation has been tested to verify weather the conclusions reached in terms of impact of Globalization impact on Small and medium Enterprises in Sindh-Pakistan Model 1. Globalization impact on Small and medium Enterprises in Sindh-Pakistan Table 3 Variables Base Value Mps In SMEs SBG Model.1 -AR Rural Model 2 RH Urban Model Poverty U-C Change W1 (SMEs) Formal Wages 0.5-0.76 -.05-0.5 +0.1 0.5 0.5 W2 Informal wages 0.1 NA NA NA NA NA NA Marginal propensity to save 0.1 0.5-0.2 0.3 +0.5 + 0.6 0.6 GDP Rh Uc SMEs Business Growth 20900000 0.3-0.4-0.6 +0.54 0.58 0.5 Gross domestic Product 15265435.1 0.01-0.2S -0.5 +0.57 0.57 0.33 Rural consumption 1455676776 0.25 0.24-0.25 +0.787 0.56 0.44 Urban Consumption 324355455 0.55 0.88 -.25 +0.75 0.88 0.55 Women s education results indicate signifi cant positive effects on the overall household food production in Shikarpur and Jacobabad. Educated women have a capacity to process and apply the information passed to them, such as better farm methods and seed selection. Overall, the primary education of the woman had a higher impact on household food production than the other variables in the case of Jacobabad. Women s education affected not only household food production but also food security. Unlike the consumption side of the model, time spent on the productive activities by a woman was positive and signifi cantly affected household food production expect for Jacobabad. Policy Implications The results provide signifi cant implication of Globalization on the rural poverty in Pakistan. No single policy can be prescribed for reducing the rural poverty in Pakistan which is tend to be increasing even though lot more investment made by the FDI. On the contrast urban population they are getting 64
benefi t of the FDI and huge employment and investment in the different sector provides the positive results for the urban population and there is signifi cant change in the production and consumption of urban population. Conclusion Globalization has often been seen as being a subtle factor that tries to undermine welfare policies of governments across the world and individual choice and being elitist in nature but it has also unconsciously forced democratic nations to be more affirmative and inclusive with respect to the betterment of all sections of societies and also to address vital issues like the conservation of the environment. This exercise highlighted the contribution household disaggregating in the context of CGE modeling exercise and marginal contribution of introducing the heterogeneity elements. According to the results Globalization has significant impact on Small and Medium Enterprises Business growth and alleviating poverty in rural Sindh. Computable General Equilibrium (CGE) Model has been gaining importance in policy analysis of the inequalities of poverty. Globalizations policies can affect in not only improve the economic growth but also help in poverty reduction policies. The task of the policymaker is to coordinate policies affecting the two areas in such a way as to optimize the contribution of Globalization to alleviate poverty in Pakistan. References 1. Ali, R, and Pitkin, B (1991) searching for household food security in Africa, Finance and development, 28 (4), pp.3-6. 2. Ajitha et at 2004-05, Effect of SAFTA on Srilanka Economy 3. Asian Development Outlook 2004, Part 3 Foreign Direct Investment in Developing Asia 4. Ayres, WS.and McCalla, A.F. (1996). Rural development Agriculture and food security.www.worldbank.org/fandd/english/1296/articles/021296.htm 5. Benjamin, J.R, and Wolfe, B.L, more evidence in nutrition demand, income seems over related and women s schooling underemphasized Journal of development Economics, 14.p.p0105-128. 6. Benjamin. (1992). Household Composition, labor markets, and labor demand: testing for separation in Agricultural household models Econometrical, 60(2), pp.287-322. 7. Bezuneh, M., Deaton, B.J.and Norton, G.W (1988). Food aid Impact in rural Kenya. American Journal of Agricultural Economics, 70(1) pp.181-191. 8. Bombay T.B.Hill, R.C.Johnson, S.R. (1984). Advanced Econometric methods, Springer-Verlag, New York. 9. Carl Aoran et al 2005, the effect of FDI on poverty allivation a case of Vietnam. 10. Caillavet, F., Guyomarrd, Hand Lifran, R. (eds) (1994). Agricultural Household modeling and family economics, Elsevier, Amsterdam and Tokyo. Revista Română de Statistică - Supliment nr. 3 / 2014 65
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