Ecuadorean Rose Industry Case Study Aayush Singhania Davey Gant Donamechi Davis Jorge A. Hernandez Sojung Kim Harvard Summer School 2011 MGMT S-5650 International Business Question 1 Ecuador is the world's 4th largest producer of rose. The country exports nearly $240 million. The roses are exported mostly to the United States and Europe. What is the basis of Ecuador’s comparative advantage in the production of roses? The lowering of the trade barriers. More efficient harvesting techniques. Area on which the rose is grown. Cheap labor. Sunlight, fertile soil, equatorial location. Harvard Summer School 2011 MGMT S-5650 International Business Question 2 Most Ecuadorean roses are sold in the United States or Europe. Who in these countries benefits from the importation of Ecuadorian roses and how do they benefit? Who loses? Do you think the benefits outweigh the cost? The United States and Europe are the main importers of Roses. The consumers will benefit because they can buy great quality at a lower price. The Florist will also benefit by selling cheaply produced roses which they have arranged, for premium price; especially on holidays like mother’s day and Valentine’s Day. However major rose produces in and outside of these two countries will suffer. They will first lose customer which will lead to a lack of profitable business. Less profit will lead to layoffs, which will soon lead to foreclosures and bad debt with the government. The more bad debts you owe the more control the government has over your life. Harvard Summer School 2011 MGMT S-5650 International Business Question 3 How does the rose export industry benefit Ecuador? Do these benefits have any implications for the United States and Europe? Job Creation Increase in Taxes due to Increase in number of rose growers Earning of Farm Labourers Implications Harvard Summer School 2011 MGMT S-5650 International Business Question 4 How should developed nations respond to reports of poor working conditions in this industry? Should importers in some way certify Ecuadorean producers, only importing from those who adhere to strict labor and environmental standards? Accusations of misuse of toxic chemicals Leading to health issues Developed nations must form their own moral compass Possible solutions include voluntary programs to identify responsible rose growers or trade sanctions Trade-off between safety measures and their consequences Harvard Summer School 2011 MGMT S-5650 International Business Case Update Has the problem been solved already? New masks, gloves and equipment, but the health conditions still prevail. Roses are sold for as much as $120 USD, most of which go to the U.S. 116,000 of which 60% are women. Two thirds (about 500 million blooms) to U.S. Still pay roughly up to $140 to employees. Rose companies pay doctors to visit weekly. Sources updated up to 2003 and 2010. Harvard Summer School 2011 MGMT S-5650 International Business © Konink ...

1. Ecuadorean Rose Industry
Case Study
Aayush Singhania
Davey Gant
Donamechi Davis
Jorge A. Hernandez
Sojung Kim
Harvard Summer School 2011
MGMT S-5650
International Business
Question 1
Ecuador is the world's 4th largest producer of rose.
The country exports nearly $240 million.
The roses are exported mostly to the United States and Europe.
What is the basis of Ecuador’s comparative advantage in the
production of roses?
The lowering of the trade barriers.
More efficient harvesting techniques.
Area on which the rose is grown.
Cheap labor.
Sunlight, fertile soil, equatorial location.
Harvard Summer School 2011
MGMT S-5650
International Business

2. Question 2
Most Ecuadorean roses are sold in the United States or Europe.
Who in these countries benefits from the importation of
Ecuadorian roses and how do they benefit? Who loses? Do you
think the benefits outweigh the cost?
The United States and Europe are the main importers of Roses.
The consumers will benefit because they can buy great quality
at a lower price.
The Florist will also benefit by selling cheaply produced roses
which they have arranged, for premium price; especially on
holidays like mother’s day and Valentine’s Day.
However major rose produces in and outside of these two
countries will suffer. They will first lose customer which will
lead to a lack of profitable business. Less profit will lead to
layoffs, which will soon lead to foreclosures and bad debt with
the government. The more bad debts you owe the more control
the government has over your life.
Harvard Summer School 2011
MGMT S-5650
International Business
Question 3
How does the rose export industry benefit Ecuador? Do these
benefits have any implications for the United States and
Europe?
Job Creation

3. Increase in Taxes due to Increase in number of rose growers
Earning of Farm Labourers
Implications
Harvard Summer School 2011
MGMT S-5650
International Business
Question 4
How should developed nations respond to reports of poor
working conditions in this industry? Should importers in some
way certify Ecuadorean producers, only importing from those
who adhere to strict labor and environmental standards?
Accusations of misuse of toxic chemicals
Leading to health issues
Developed nations must form their own moral compass
Possible solutions include voluntary programs to identify
responsible rose growers or trade sanctions
Trade-off between safety measures and their consequences
Harvard Summer School 2011
MGMT S-5650
International Business
Case Update
Has the problem been solved already?

4. New masks, gloves and equipment, but the health conditions
still prevail.
Roses are sold for as much as $120 USD, most of which go to
the U.S.
116,000 of which 60% are women.
Two thirds (about 500 million blooms) to U.S.
Still pay roughly up to $140 to employees.
Rose companies pay doctors to visit weekly.
Sources updated up to 2003 and 2010.
Harvard Summer School 2011
MGMT S-5650
International Business
© Koninklijke Brill NV, Leiden, 2012 DOI:
10.1163/156914912X620725
PGDT 11 (2012) 38-49 brill.nl/pgdt
P E R S P E C T I V E S
O N G L O B A L
D E V E L O P M E N T
A N D
T E C H N O L O G Y
The Wealth (and Want) of Nations: The Impact
of Economic Globalization on the Developing World

5. Dwight Haase, PhD
Department of Sociology and Anthropology
University of Toledo
Email: [email protected]
Abstract
In this article I review the literature on four outcomes of
economic globalization: growth, wages,
poverty, and inequality. Special attention is given to the
importance of these outcomes for people
of developing nations. Findings in the literature show a
correlation between economic globaliza-
tion and economic growth, but the relationship is much stronger
for some nations than for oth-
ers. Evidence on wages also shows uneven benefijits from
economic globalization. The evidence
on poverty is inconclusive, while several authors note growing
inequality within nations. These
studies highlight the need for more research that includes
extraneous factors, such as foreign aid
and remittances. Further research also should refijine the unit of
analysis and gather extensive
data from the informal sector.
Keywords
Globalization, free trade, liberalization, poverty, inequality
Introduction
There has been much debate about whether economic
globalization is good
or bad for people in their daily lives. Of course, disagreement
among academ-
ics is by no means nothing new, but rarely do we see such
polemic views on
what appears to be a fairly simple question. Marber (1998)

6. claims, “Multi-
nationals are helping the poor get richer and the rich stay rich,”
(p. 87) while
Isaak (2007) in his title asserts, “the rich get richer and the poor
get left further
behind.” At least they agree about the rich. So the real debate
seems to be
about the poor, and that will be the focus of this article. More
precisely, I will
look at four outcomes of economic globalization for people in
developing
nations: growth, wages, poverty, and inequality. I will not
offfer a defijinitive
assessment of those four outcomes; but with a fresh look at the
data available,
D. Haase / PGDT 11 (2012) 38-49 39
I hope to contribute to a broader and deeper understanding of
the social
impact of economic globalization.
Part of the problem with the debate on economic globalization
is that peo-
ple agree on what exactly it is, but much less on what efffect it
has. But at least
there is a common understanding that economic globalization
involves freer
trade and investment between nations, as well as a certain set of
policies sup-
posedly designed to make each nation more adept at trading and
more attrac-
tive to investors. In this article I will begin with that simple
defijinition and look

7. at how it has been operationalized and correlated with the
aforementioned
four outcomes in a variety of studies. This is not an exhaustive
review of the
literature; nor will it delve into the intricate details of each
study. Rather the
objective of this article is to concisely assess the state of
research on economic
globalization.
Economic Growth
Several works have found that increased foreign direct
investment (FDI) cor-
relates with economic growth (Bhagwati 2004; Borensztein et
al. 1998; Frankel
and Romer 1996; Dollar 1992; and Dollar and Kraay 2001).1
The correlation
between free trade and economic growth also has been well
documented (Lee
and Sohn 2010; Sachs and Warner 1995; Wacziarg and Horn
Welch 2008; World
Bank 2002).
Sachs and Warner’s (1995) piece is seminal; but their fijindings
are based on a
simplistic dichotomous measure of trade liberalization, which
shows no cor-
relation with growth in later years (Wacziarg and Horn Welch
2008). The
World Bank (2002) study uses a measure of globalization based
on rates of
change in trade/GDP, which thus exaggerates the extent to
which China and
India have globalized economically. Indeed, those two nations
are changing

8. rapidly, but they started at such low levels of trade/GDP that for
most of
the timeframe covered by the research China and India’s
trade/GDP ratios
actually were low compared to many other nations. Meanwhile,
Wacziarg and
Horn Welch’s (2008) research shows remarkable heterogeneity
in the experi-
ences of trade liberalization from one nation to the next.
Wacziarg and Horn
Welch fijigure such erratic outcomes reflect countries’
diffferent macroeconomic
situations and non-trade policies that were enacted in
concurrence with trade
1 The fijindings of Borensztein et al. (1998) come with a
caveat: the correlation holds only so
long as a minimal threshold stock of human capital is
maintained.
40 D. Haase / PGDT 11 (2012) 38-49
liberalization, but more research is needed to verify if indeed
those factors
are at play.
Other studies use capital account openness as their indicator of
economic
globalization, and fijind no correlation between that indicator
and economic
growth (Rodrik 1997; Alesina et al. 1994). Chanda (2005) uses
the same indica-
tor to show that more developing nations sufffer than benefijit.
Meanwhile,

9. Edwards and Ginn (2011) fijind that regional free trade
agreements could make
nations more vulnerable to market volatility.
The studies cited so far focus solely on one indicator of
economic glo-
balization. Dreher (2002) argues that not including other
dimensions of global-
ization as variables in the analysis could severely bias the
estimated economic
globalization coefffijicient. So Dreher collapses twenty-three
variables related to
globalization into three sub-indexes (economic, political and
social), and com-
pares more economically integrated countries to less integrated
countries. He
fijinds that the former grew faster in every fijive-year period.
Since changes in the
globalization index over time might to some extent reflect
missing data instead
of real changes in globalization, Dreher adds more variables
related to black
markets, balanced national budgets, political instability,
inequality, and bank-
ing and institutional quality. But the fijindings remain robust.
Dreher concludes
that globalization does foster growth, but not enough to
eliminate current lev-
els of poverty around the world.
Meanwhile, Milanovic (2003) questions whether such growth is
even
attributible to globalization. His longitudinal analysis reveals
that countries
like China actually grew more strongly before economic
integration, not after.

10. These works offfer essential contributions to our understanding
of globaliza-
tion, but they share a common problem in that they do not
control for non-
trade revenues such as remittances and foreign aid. As a result,
those studies
might be exaggerating the benefijits of free trade for the
economies of many
developing countries.
According to the World Bank, recorded workers’ remittances to
developing
countries reached three hundred and twenty-fijive billion dollars
in 2010. This is
less than one percent of world GDP, but those remittances are
heavily concen-
trated in certain areas. For example, in Mexico remittances are
second only to
oil exports in terms of income earned abroad (MPI 2007).
Meanwhile, there is
persuasive evidence of the positive social impact of remittances
(Page and
Plaza 2006). Thus the economic benefijit of remittances could
be quite substan-
tial in certain nations, and should be factored into analyses of
the impact of
economic globalization.
Aid is another source of non-trade revenue. Over one hundred
billion dol-
lars annually is being allocated to developing nations around the
world to

11. D. Haase / PGDT 11 (2012) 38-49 41
facilitate growth. This is only a fraction of a percent of world
GDP, but still it
could have substantial multiplier efffects for the poor in many
countries via
various social services and economic development projects.
However, it is
important not to assume such services and projects always are
benefijicial. A
number of authors have shown that political imperatives and
cultural misun-
derstandings can beget undesirable outcomes for aid recipients
(Easterly 2006;
Hancock 1989; Klein 2008; Maren 1997; Moyo 2009). As an
example of this,
CARE International, one of the world’s biggest aid distributors,
announced in
2007 that it would no longer accept forty-fijive million dollars
in annual US
food aid because those donations were stifling developing
economies (Dugger
2007).
Finally, another problem with most studies of growth and
economic global-
ization is that they use the nation as the unit of analysis, thus
treating the data
as if growth is distributed evenly within nations. Of course,
there is good rea-
son to doubt that, so we need smaller units of analysis—
industries or regions
within countries—to better ascertain who exactly benefijits from
economic
growth within a given nation. We will see below that this
problem of units of

12. analysis is a recurring theme throughout this article.
Wages
The basic expectation in mainstream economic theory is that
economic glo-
balization will allow for increased competition around the
world, which in
turn will lead to increased productivity and then higher wages.
This assumes
an active and efffective civil society that can monitor the
corporations and
make sure they share the fruits of increased productivity with
their workers.
That is a big assumption for many countries, so we should not
be surprised to
see the evidence on wages is mixed.
Starting with the good news, Bhagwati (2004) correlates gains
in wages with
free trade policies and FDI in various countries. Hanson and
Harrison (1999)
show that in Mexico foreign and export fijirms on average pay
higher wages
than domestic and non-export fijirms. Flanagan (2006) fijinds
that on average
there is a three- to fijive-percent increase in wages for people
working for multi-
national corporations, but no spill-over efffect to other fijirms.
However, it is not
clear if this wage premium is simply a case of selection bias
because exporting
fijirms tend to hire workers with more human capital, and those
persons get
higher wages.

13. Other studies tell a diffferent story. For example, using
longitudinal house-
hold surveys, Arbache et al. (2004) show a fall in real wages
over time in Brazil.
42 D. Haase / PGDT 11 (2012) 38-49
Furthermore, wages in the traded sector fell relative to the non-
traded sector
after trade liberalization. More precisely, what happened was an
immediate
drop in wages with trade liberalization, with a slight comeback,
but never a full
return to pre-liberalization wages. Arbache et al. say the efffect
is particularly
harsh for less educated workers. Bittencourt (2010) concurs,
and calls for
greater investment in human and physical capital for Brazil’s
poor urban
households. In Mexico Robertson (2005) fijinds the increase in
border enforce-
ment that followed NAFTA has efffectively depressed wages;
and Squires (2011)
argues that neoliberal reforms accompanying NAFTA decreased
Mexican
nurses’ wages. Meanwhile, Waldkirch (2010) fijinds the efffect
of FDI on Mexican
wages is negative or zero at best since the start of NAFTA.
At least in part, the discrepancies in fijindings might lie in the
fact that studies
like Flanagan’s (2006) treat all multi-national corporations and
all sectors of
the economy as if they are the same. In fact, there is evidence

14. that the impact
of free trade varies by sector (Ferreira and Ravallion 2008). So
again, as with the
studies of growth, smaller units of analysis are necessary to
ascertain variations
in wages within countries.
Also drawing parallels to the growth research, another problem
with the
studies of wages is that they do not consider the impact of aid.
The exponential
growth of the NGO sector, along with the programs it promotes,
might reduce
overall unemployment and thus raise wages in the formal sector.
Aid also
might strengthen civil society, thus empowering workers to
demand higher
wages.
Wage studies also are problematic since they do not factor in
the income
lost in terms of government revenue. Remember that economic
globalization,
as defijined in this article, includes not only the volume of trade
and invest-
ments, but also the policies made to attract such trade and
investments. Typi-
cally, those policies have included cuts to public spending,
which could have
been used for health care, better infrastructure, and food
subsidies. When gov-
ernments cut such spending, it could efffectively raise the price
of various goods
and services—and thus the cost of living. Scheper-Hughes’
(1992) monograph
about an impoverished Brazilian barrio details the personal

15. trials and traumas
of what she calls “the violence of everyday life” during such
budget cuts.
Furthermore, the focus on wages has distracted our attention
from volatility
in the costs of daily living often attributable to economic
globalization. In the
past few years we have seen impressive gains in wages offfset
by rapid price
hikes in grains and fuel in many countries. Most disturbing was
the 2008 food
crisis, when prices of grains more than doubled in many
countries, efffectively
pulling over one hundred million people into extreme poverty
(Ivanic 2011).
Finally, another problem with the current research on wages and
economic
globalization is that it typically does not include workers in the
informal
D. Haase / PGDT 11 (2012) 38-49 43
sector—that part of the economy unregulated by the
government. And yet the
informal economy accounts for fijifty to seventy-fijive percent
of non-agricultural
employment in developing countries, as well as anywhere from
twenty-seven
to forty-one percent of nonagricultural GDP in developing
countries (Carr and
Alter Chen 2001; ILO 2002).

16. Given these conditions, more research on the informal sector is
imperative.
Unfortunately, gathering data on the informal sector can be
much more labor
intensive and costly than gathering data on the formal sector.
The Interna-
tional Labor Organization (ILO) has made impressive progress
in gathering
data, but more resources should be made available so the ILO
can be more
thorough and comprehensive in its work.
Poverty
The outcome of economic globalization that is most difffijicult
to measure is
poverty. Evidence of this difffijiculty resides in the
exceptionally large margin of
error in global poverty estimates. In part this phenomenon is a
function of the
fact that so many people live on the edge of poverty, a slight
change in the
poverty line begets a huge change in the number of people in
poverty (Wade
2004). This problem could be dealt with by not relying on one
strictly defijined
poverty line. But there are other problems that are not so easily
resolved. First
and foremost, international poverty estimates typically are
reported in pur-
chasing power parity (PPP) dollars. PPP dollars control for
diffferences in prices
between nations by estimating the value of a basket of goods
and services for
each nation and then converting those values into one
international standard,

17. the PPP dollar. It is an ingenious concept, but since China and
India did not
participate in past projects to establish PPP indicators, their
PPP values are to
some extent guesses. Even for those countries that did actively
participate in
the project to establish PPP indicators, their baskets sometimes
include prod-
ucts that may not even be relevant to their country; so global
price fluctuations
in a commodity that is not even sold in a given country could
give the appear-
ance of people in that country pulling themselves out of
poverty, or falling back
into poverty (Srinivasan 2004; Reddy 2004).
Given these problems, Srinivasan (2004) concludes that it
simply may be
preferable to abandon our attempts to create an international
standard for
measuring poverty. Reddy (2004) does not give up on the
endeavor; instead he
calls for more detailed data gathering. This idea sounds quite
appealing, but it
would require a massive (and unlikely) fijinancial and logistical
commitment
from governments around the world. As an alternative, Reddy
(2004) also men-
tions the possibility of returning to calorie-based measures that
already have
44 D. Haase / PGDT 11 (2012) 38-49
been used in many countries. But such measures only tend to

18. capture the
nutritional impact of poverty; they tell us much less about
access to shelter,
health care, education or human rights. Calorie-based measures
cannot help
us to understand protests over fuel prices and other incidents of
civil unrest
that have occurred in recent years. Nor do they offfer any
insight on what policy-
makers should do to address those problems.
Wade (2004) suggests we use exchange rate dollars instead of
PPP dollars.
This indicator we can see changing daily, so it is more capable
of measuring
rapid market dynamics. Using exchange rate dollars, Wade
shows inequality
actually is increasing between nations. Wade’s critics would
argue that
exchange-rate values are irrelevant since most poor people
around the world
are not directly engaged in the global economy. But Wade
contends exchange
rates are indeed important because Third World nations need to
import tech-
nology and consultants to foster their own development, and
those purchases
depend on exchange rates. A viable solution is to employ PPP
dollars and
exchange-rate dollars together, as well as calories where
appropriate, to check
for robustness of fijindings between these various measures.
This could give us
a more well-rounded perspective of the status of poverty around
the world.

19. Another option is simply to look at countries individually as
case studies.
Borras (2007) does this for the Philippines, and fijinds that free-
trade and liber-
alization policies fail to address rural poverty and inequality in
the Philippines.
Elsewhere, Bussolo and Niimi (2009) estimate the impact of
CAFTA on Nicara-
gua and fijind the impact on poverty is not too large, but see
potentially greater
benefijits if Nicaragua’s free-trade policies were expanded to
include more
countries. Meanwhile, Cardero et al. (2006) assert that Mexico
has overvalued
its currency as a part of its liberalization policies, which in turn
has increased
poverty in Mexico. Studies in other countries note an increase
in inequality
that comes with such policies (Babb 2005), which is the fijinal
topic of this
article.
Equality
While wages and levels of poverty are necessary indicators of
the impact of
economic globalization, they are not sufffijicient. The question
of equality
remains. It is important not only for the sake of fairness, but
also because
inequality tends to beget increases in violent crimes, drug
abuse, and psycho-
logical problems, such as anxiety. Life expectancy declines with
increased
inequality, as does trust in civil society. Inequality also inhibits
economic

20. growth through its efffects on political institutions (Alesina and
Perotti 1996).
D. Haase / PGDT 11 (2012) 38-49 45
Finally, indicators of happiness and life satisfaction drop
signifijicantly with
increased inequality (Kahneman and Deaton 2010; Pickett and
Wilkinson
2009).
The good news is that global inequality appears to be
decreasing over the
last thirty years if we weight countries by their populations.
Becker et al. (2005)
argue this trend would look even more impressive if we control
for increased
longevity in developing nations in recent years (and thus more
years working
per person). However, if we do not weight countries by their
population,
inequality actually is increasing. The diffference between these
two fijindings
lies in China and India’s rapidly developing economies. These
two nations,
with over two billion people, overshadow increasing inequality
in smaller
countries. Furthermore, if we look at the absolute diffference in
dollars rather
than the percentage diffference in GDP per capita between
nations (subtract-
ing a poor nation’s GDP per capita from that of a wealthy
nation, rather than
dividing), we actually see a widening gap (Wacziarg and Horn

21. Welch 2008;
Wade 2004).
Another complication is the fact that the studies cited so far use
the nation
as the unit of analysis. This means the diffferential impact of
economic global-
ization for various demographic groups within nations is
overlooked. But case
studies around the world suggest that globalization can benefijit
some groups at
the expense of others. For example, Niazi (2008) notes how
ethnic minorities
are losing control of lucrative resources while Pakistan’s
economy globalizes.
And studies conducted in Mexico, Brazil, Taiwan and Indonesia
show increased
returns to education, thus begetting increased inequality within
those nations
(Bourguignon et al. 2005; Feliciano 2001; Cragg and Epelbaum
1996; Green et al.
2001). Other studies in Mexico, Costa Rica and Chile show a
skill premium, so
highly skilled labor benefijits more from free trade than do less
skilled workers,
again resulting in increased inequality among workers (Robbins
1994; Robbins
and Gindling 1999; Feenstra and Hanson 1997). Meanwhile,
Ferreira and Raval-
lion’s (2008) longitudinal analysis of one hundred and thirty
nations suggests
that these cases are not isolated or ephemeral.
These studies suggest that globalization has widened class
divisions. But of
course class is only one of several possible statuses upon which

22. societies are
stratifijied. Researchers have only begun looking into gender-
related diffferences
in developing countries. Xiaoling et al. (2007) fijind that
globalization only per-
petuates gender inequalities in the Chinese manufacturing
sector. And
Arbache’s et al. (2004) study of Brazil fijinds that women
continue to earn less
than men, even after controlling for human capital.
More research delving into class and gender diffferences within
countries
and industries is necessary to better ascertain global trends. And
this research
46 D. Haase / PGDT 11 (2012) 38-49
should be complemented with similar studies related to
racial/ethnic, age and
demographic diffferences that otherwise would not be apparent
from studies
that use the nation as the unit of analysis.
Conclusion
The studies reviewed in this article offfer essential
contributions to our under-
standing of the outcomes of economic globalization. There is
some impressive
evidence of a correlation between economic globalization and
economic
growth, but that growth is not evenly shared by all nations.
Some possible spu-

23. rious factors such as aid and remittances might help to explain
the unevenness
of growth, but those factors have not been included in most
analyses.
As with growth, gains in wages are not evenly distributed, with
some work-
ers enjoying higher wages while others lag behind. Furthermore,
the evidence
on wages tells us little about developments in the informal
sector; nor does it
tell us how families are afffected by dramatic price changes of
basic commodi-
ties, like fuel and grains.
As for the research on poverty, methodological complications so
far have
eclipsed the prospect of any defijinitive fijindings. The data on
global inequality
are clearer, showing some nations falling behind. Furthermore,
using the
nation as the unit of analysis obscures inequality within nations,
which appears
to be growing.
These fijindings leave us with many more questions, which
highlight the need
for new research that includes non-trade revenues at the macro
level and mea-
sures of income adjusted for rapid price changes in commodities
at the micro
level. Such research also should look at the impact of economic
globalization
not only in the formal sector, but also in the informal economy.
Finally, we
must consider smaller units of analysis to ascertain the

24. diffferential impact of
globalization for various demographic groups.
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