Globalization and Inequality

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I wrote the essay but it needs to be edited and revised

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It is under sourced and vague. Improve on the sources and on the relationship between particular neo-liberal policy and inequality. Clarify as to why I chose Haitii and China and explain the claims. Focus more on particular types of policies.

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Globalization and Inequality Issar Alhindi Political Science 329 November 20, 2017 Professor McKenzie Globalization became the cornerstone to the international world in the 20th century, and it remains as such today. Trade, commerce, investment, and cultural exchanges have been major influences on how leaders in the politics and business have been making their decisions. Neoliberal policies suggested by international organizations by have been the principal force for the justification of continued globalization. A question that may should be considered would be to what extent has globalization under the neoliberal agenda creates or further perpetuates socioeconomic inequality within nations who have no role in the World Trade Organization. Globalization is an asymmetrical process in which some governments, companies, and individuals within a country gain more than others. Consequently, wages in less developed countries have not risen, even though the amount of capital flowing into the country and the amount of trade being done have increased. Although globalization and inequality have been heavily researched my political scientist and economist alike, there is an area that requires a more in-depth analysis. With countries and private company is continuing to grow, globalization is an ever -changing phenomenon. The lines between the private sector and the government have become blurred, due to mutual dependency and common interest amongst the different entities. With the amount of information available, globalization, and aggregate level can be set up with greater ease. Globalization, however, is an asymmetrical process in which some governments, companies and individuals within a country get more than others. Generally speaking there are two types of inequality; horizontal being inequality between nations and vertical being inequality with the nations themselves. The focus of this paper will be on the latter of the two, the vertical and the quality of nations. More specifically, the vertical inequality created in advanced as a result of the current neoliberal perspective the world has adopted with less developed countries. To advance the topic one must understand what a neoliberal perspective is. "Neoliberalism involves both a set of theoretical principles and a collection of socio-political practices, all of which are directed towards extending and deepening capitalist market relation and most spheres of our social lives” (Saad-Filho & Johnston 2005.) In other words, Neoliberalism approaches globalization a inevitable and vital, therefore it should be advanced despite whatever the repercussions may be. Neoliberal policies include having countries openly trade with one another, typically without tariffs, privatizing state-owned enterprises, deregulation, and other economic policies meant to promote a free and competitive market. Inequality within a nation is inherent, but the argument is that within some countries it is not only exploited, but the level of inequality is avoidable. Beyond its avoidance, and central to the argument it that current world organizations like the World Bank, International Monetary Fund, and World Trade Organization are perpetuating and have increased inequality within these nations with their influence and neoliberal regulations. The working of the international organizations have made high levels of inequality in countries possible, as they create an attractive environment for foreign governments and industry leaders to exploit. Less developed countries in particular have a surplus of low skilled workers due to their lack of infrastructure, and ability to provide education and trade. This in turn makes these workers expendable and the policies set forth by the aforementioned groups have influenced the leaders of the country’s economy to keep wages low in the hopes of bringing more business (products ) to the countries’ in question. In order to address the question of increasing vertical inequality within nations, there must be a definition of what is being addressed. Generally speaking, there are two types of inequality; horizontal being inequality between nations and vertical being inequality being within nations themselves. A review of the literature demonstrates that there are divergent results on the topic of globalization and inequality that political scientists have focused on. The political scientists that have focused on the scholarship of horizontal income inequality claim that increased economic market integration has led to a decline of global income inequality (Firebaugh and Goesling 2004). Glenn Firebaugh used the Gini coefficient index to measure the change in horizontal income inequality from 1978 to 1998, and discovered that horizontal income inequality has fallen by 4.9% (2004). The driving force behind this occurrence has been the increased economic development that China and India have experienced since 1970’s. Hofung Hung and Jaime Kucinskas state “these two countries constitute nearly 40 percent of the world’s population and experienced average income growth rates three to four times the world average over the past quarter century,” (2011). However, those who focused on the scholarship of vertical income inequality claim that income inequality within nation has increased. In 1942, Wolfgang Stopper and Paul Samuelson postulated their Stolper- Samuelson’s “Trade Theorem” which stated the effects that increased economic globalization market integration would have on the unskilled workforce of both developed and less developed nations. The theorem states that developed countries would export high skilled intensive good and import low skilled intensive goods and import high skilled intensive goods, thus raising wages of low skilled labor (Michael 2016). The former has held true since the average Gini coefficient of OECD countries rose from 29 in the mid-1980’s to 31 in the late 2000s and the “household incomes of the richest 10% grew faster than those of the poorest 10%, so widening income inequality” (DIvided We Stand 2011). THe latter, however has proven to be false. Current literature on the effects of economic policies suggested by the IMF, WTO and World Bank has primarily focused on inequality and poverty. Studies have shown a correlation between the IMF’s lending programs and increased inequality in the participating countries (Oberdabernig 2013). In addition to this, the three international organizations have successfully negotiating with many countries into adopting economic policies that would make them a competitive in a global market. As a result, wealthy companies gained the ability to purchase cheap labor and goods from other countries in which wages and prices have decreased in order to become globally competitive. Consequently, leading to an overall redistribution of wealth, where only the rich have become significantly wealthier. (Harvey 2005). Overall, the literature that has been reviewed has pointed to the idea that globalization has decreased horizontal inequality among nations, and has increased vertical inequality. It is also evident that the aforementioned international organization have had a role in a perpetuating globalization through the implementation of neoliberal socioeconomic reforms. What was found lacking in literature is the relationship between a particular country’s role or membership in an international organization, and their respective economic policies. None of the literature that was came across discussed whether or not prior membership in the international organizations influences what the organizations advocated a country to do, and whether or not the country actually follows through with it . This is significant because advocating for and adopting different socio-economic policies can greatly fuel or diminish vertical inequality. WTO Membership’s Impact on Socio-economic Policy International organizations such as the IMF, WTO, and World Bank consist mostly of highly developed countries, and as a result are inherently more concerned with improving the standard of living and the economy of their respective highly developed countries. The reasoning behind helping developing countries better their economics is not purely humanitarian , it is done in order to benefit developed countries economically in the long run. The mission of these international organizations is to develop a competitive, free global economy in which governments, corporations and individuals can purchase the goods and labor that they need at the lowest prices that the market allows. The theory that countries that were members of the WTO’s predecessor GATT prior to the implementation of neoliberal policies in the 1980’s, such as the liberalization of their market and privatization of state enterprises either implement policies less extreme than those that are advocated to non-members or do not implement them at all. The reasoning behind this is that a completely liberalized market does not protect individual countries from the struggles that come along with a competitive market. For instance, tariffs are implemented on imported in order to encourage consumers to buy products from their own country, in order to keep money circulation within the country. It would fall within reason reason for a country who is a member of the WTO to advocate that they themselves do not totally liberalize their market, because that would be in their best interest. On the other hand, a country who is not a member of the WTO would have no initial say in what policy the WTO or other international organizations may tell that country to adopt. Therefore, the country who is not a member will be told to adopt true neoliberal policies, since this will greatly benefit those countries who are already members. This may bring some benefits to the non-member country, such as increased trade and foreign investment are the corporations and government, not the middle class or the working poor. In fact, the neoliberal policies designed to make foreign investment attractive generally bring wage cuts, loss of benefits and harsher working conditions through deregulation. The theory that absolute inequality within a country who was not a member of the WTO or GATT prior to being told to adopt neoliberal policies will be greater than the inequality within a country who was a member. Globalization is a broad term that needs to be narrowed for the purpose of the analysis. As a standard four elements are used, which takes into account foreign money trade, technological advances, and potentially the most influential, political integration (Acemoglu 2006). A sample of ten countries will further analyze the question. These countries are differentiated by being either developed or less developed countries, and by their membership or absence of membership in the World Trade Organization (WTO) and its predecessor General Agreement on Tariffs and Trade (GATT). A membership in the IMF and World Bank may also affect a country’s economic policies, but given the fact that most developed countries joined decades before the rise of neoliberalism, it would be difficult to have diverse case studies. For the less developed countries the United Nations provides a better sample. Their criteria are based on three distinct principles; first, a low-income criterion based on per capita income, second a human weakness, and economic vulnerability (Nationsonline.org). I2n choosing the case studies both developed, and less developed countries were included. Given that there are only a handful of developed countries in the world the study only included a few while the others are developing countries. Neoliberal policies and procedures were not introduced until the 1980’s so having half of the selected countries be members throughout the transition allows us to compare the countries rooted in the neoliberal agenda set forth by theses organizations and those whom are new to the process as in the case of Russia. To find out what if any effects these organizations have on the absolute inequality within these nations, the focus will be on absolute inequality. This depends on the absolute differences between incomes, which is a better gauge of the income gap that a country has (Ravallion 2004). To measure the absolute inequality amongst the population of the country the Gini index provides the data required. The Gini index is a standard measurement tool for income inequality among and within nations therefore for the purpose of the study it is the best representation of the principal question. The idea of the Gini index is a simple one, it is a number scale system that denotes a society’s income inequality. A country that scores a 0.0 would have a perfect income equality with the nation, the further the number is from 0.0 the higher the level of inequality. Five countries that were chosen that were previously in the GATT to allow for a good sample of countries that were current members when the policies shifted to a neoliberalist approach. The next five were countries that joined the WTO after 1995 and the policies were the norm and entrenched in the organization. Drawing the data from the World Bank and the World Fact Book it was examined that the Gini indexes of the targeted countries to see if inclusion into the WTO and the vertical inequality of a nation were correlated and if so to what extent. Ultimately, what will be measured is the absolute inequality within a country before and after implementing neoliberal policies as suggested by the international organizations. This will be accomplished by looking at how the Gini index of each of the case studies changes through time. As Joseph Stiglitz highlights “the majority of those living in the former Soviet Union, economic life under capitalism has been worse than the old communist leaders said it would be.” Through instructions from the IMF and World Bank, Russia rapidly transitioned from a relatively isolated, communist nation to a capitalist country, engaged in the free world market.As a direct result, artificial prices of necessities such as energy and food in Russia were quickly replaced with the higher market valued prices. This led poorer Russians to spend all their money on goods and services essential to survival. In the meantime, the wealthiest Russian had acquired new customers across the globe that they could sell oil to. Russia quickly became an oligarchy. (Stiglitz 2003) The Russian case is unique in that it was a former communist nation, and when it opened its markets to the world some became unbelievably wealthy and others were forced into extreme poverty. What is not unique is that Russia’s middle class deteriorated as a result of wages not keeping up with inflation and real incomes falling. (Stiglitz 2003) The inequality in Russia is most clearly seen when looking at the different regions that make up Russia, thus isolating the agrarian sector from the industrial sector. In 1994, the gap between the minimum and the maximum GRP per capita was a factor of 14, in 2005 it was a factor 38, and in 2012 it was a factor of 17. In contrast, most developed nations in Europe have an economic gap a 23.8 in 1988, more than doubled to 48.4 in 1993 and has remained close to 40 to this day. It should be noted that Russia did not join the WTO until 2012. Prior to the 1980’s, China was very isolated. Its entrance into the world market was much more gradual which is contradictory to what the IMF and World Bank had proposed. The Communist party had decided that china’s development would rely heavily on foreign direct investments. This was done in order to prevent powerful capitalist from popping up in china, keeping the power of the state over its citizens intact. (Harvey 2005) China’s large population of unskilled wage workers is very attractive to foreign investors, so much so that by the 1990s China became the number one producer of consumer goods for the United States. However, even though demand is very high wages are still extremely low. (Harvey 2005) The economic inequality in China also seems to derive from regional differences in the country. China has sectors called Economic and Technological Development Zones and High-Tech Industrial Development Zones. These zones are located in cities that have policies that make foreign investment attractive. Although income in these zones have risen, the incomes in outside regions have either remained stagnant, or increase very slightly. (Valerio Mendoza 2014.) Thus the absolute income gap in China has continued to increase. This can also be seen in the Gini index which was at 30 in 1980, steadily rose to 41.5 by 200, which is when China joined the WTO. Nevertheless, China’s Gini index continued to rise to 49,and has only recently begun to decrease slightly. Previous studies pin the cause of vertical inequality within Haiti as a result of its failure to move beyond its colonial means of production. Haiti’s engine of production during colonial times was plantation farming. However, instead of transitioning into capitalist farming, the rural areas have regressed into subsistence farming, while the its primate city of Port-au-Prince has transitioned into an industrial mode. The inequality between the rural and the primate city is further exacerbated by the fact that the rural areas house 80 percent of the population (Maguire 1995). Two-thirds of those living in the rural areas made less than $40 annually, while those living in Port-au-Prince made $289 more (Maguire 1995). Proposed solutions close the economic gap between those in the rural sector and the urban sector is educational and agrarian reform. With regards to agrarian reform the proposed solution has been the redistribution of land so that each rural family has about 3 hectares of arable land (Jadotte 2006). However, agrarian reform will not dampen the inequality because neoliberal policies implemented by Haiti at the behest of the IMF make it economically impossible for local farmers to compete against foreign countries selling agricultural products within Haiti. And thou increased educational spending will give rise to a more educated work force the effects will be minimal in the rural areas because ninety-nine percent of the industrial manufacturing is located in Port-au-Prince (Maguire 1995). Unless Haiti manages to make its local agricultural products more competitive with foreign actors present within their market and manage to disburse the industrial sector away from the city and into the rural areas it will continue to see rising inequality between urban and rural areas. In 1940, Mexico began to implement an import substitution economy by passing laws that raised tariffs, created import licenses, and official reference prices. (Hanson and Harrison 1999; Pacheco-Lopez 2005). Subsequent administrations further strengthened these policies (Hanson and Harrison 1999). These measures effectively kept foreign companies from entering the Mexican market until 1985 (Hanson and Harrison 1999). However, under the Lopez Portillo administration the protectionist policies began to be weakened. In 1977, President Portillo initiated liberalization reforms that slightly reduced the number of import products that required licenses. Two years later, Portillo signaled his intent to join GATT and participated in the Tokyo round. In the Tokyo round Mexico was able to gain better entrance terms, than the ones afforded to other less developed countries. Mexico would be allowed to keep 1,329 tariffs that totaled 2.6 billion dollars in 1976 currency, however, they would have to eliminate regulations on 328 products that totaled $503 million and accounted for 8.5 percent of the total value of that years’ imports (Story 1982). The following year Portillo postponed joining GATT because of internal political strife, and Mexico did not join GATT until 1986. Two years prior to joining GATT, Mexico’s Gini index was 48.95, and three years after joining, the Gini index spiked up to 54.34. However, in the following years and up to recent years, Mexico’s Gini index has returned and remained around 48. In the case of the countries who were members of GATT, the Gini index rose in the late 1980s. However, a few years later the Gini index either flat lined or slightly decreased. (World Bank) On the other hand, the countries who never had a membership in GATT and later joined the WTO saw a significantly higher spike in their Gini index through the 80s and 90s. These countries either never returned to close to their initial values, or were only able to do so years after joining the WTO. Prior to beginning this research, the hypothesis that absolute inequality within a country who was not a member of the WTO or GATT would demonstrate greater vertical inequality that its counterpart who was a long standing member in the aforementioned organization(s). Using the data from the World Bank and individual case studies, it appears that countries who were not members of GATT saw higher levels of absolute inequality when they adopted neoliberal policies and took longer to recover as well. It seems that after the countries became members of the WTO that a spike in inequality occurred, suggesting that although the governments and big businesses may be ready for the neoliberal policies, the economy within said country may not be. If countries allowed the economies the time to develop further and incrementally rather than broad and swift overhauls in foreign policy, the countries inequality might have a better chance of adapting. References Harvey, David. 2005. A Brief History of Neoliberalism. Oxford: Oxford UP, Print. Jadotte, Evans. 2006. Income Distribution and Poverty in the Republic of Haiti. PMMA Working Paper 2006-13. Maguire E., Robert. 1995. Bottom-Up Development in Haiti. Institute of Haitian Studies. University of Kansas. Maslikhina, Veroncica. 2015. Interregional Inequality in Russia: Empirical Analysis. Actual Problems in Economics. McGown, Lisa. 1997. Democracy Undermined, Economic Justice Denied: Structural Adjustment and The Aid Juggernaut in Haiti. The Development Group For Alternative Policies Ravallion, Martin. 2004. Competing Concepts of Inequality in the Globalization Debate. The Brookings Trade Forum Saad-Filho, and Johnston. 2005. "Neoliberalism: A Critical Reader." University of Chicago Press. N.p. Stiglitz, Joseph. 2003. Globalization and Its Discontents. Norton Paperback Valerio Mendoza, Octasiano M. 2014. "Income Inequality in China's Economic and Technological Development Zones and High-Tech Industrial Development Zones, 1995-2002." China Economic Policy Review. Nationsonline.org Wong, R. Bin. 2008. Symposium: Lessons From Chinese Economic History: Transformations of China's Post-1949 Political Economy In a Historical Perspective. Pacific Economic Review Daron Acemoglu. 2006. "Economic Inequality and Globalization"

Tutor Answer

MrMark
School: Cornell University

I have completed and attached the paper.Regards

Running head: GLOBALIZATION AND INEQUALITY

Globalization and Inequality
Name
Institution

1

GLOBALIZATION AND INEQUALITY

2

Globalization and Inequality
Globalization became the cornerstone of the international world in the 20th century, and
it remains as such today. Trade, commerce, investment, and cultural exchanges have been major
influences on how leaders in politics and business have been making their decisions. Neoliberal
policies suggested by international organizations have been the principal force for the
justification of continued globalization. A question that should be considered would be to what
extent has globalization under the neoliberal agenda creates or further perpetuates socioeconomic
inequality within nations who have no role in the World Trade Organization. Globalization is an
asymmetrical process in which some governments, companies, and individuals within a country
gain more than others. Consequently, wages in less developed countries have not risen, even
though the amount of capital flowing into the country and the amount of trade being done have
increased.
Globalization is a broad term that needs to be narrowed for the analysis. As standard four
elements are used, which takes into account foreign money trade, technological advances and
potentially the most influential, political integration? (Acemoglu 2006). A sample of ten
countries will further analyze the question. These countries are differentiated by either being
developed or less developed countries, and by their membership or absence or membership in the
World Trade Organization (WTO) and its predecessor General Agreement on Tariffs and Trade
(GATT). Membership in the IMF and World Bank may also affect country's economic policies,
but given the fact that the most developed countries joined decades before the rise of
neoliberalism, it would be difficult to have diverse case studies. For the less developed countries,
the United Nations provided a better sample. Their criteria are based on three distinct principles;
first, a low-income criterion based on per capita income, second a human weakness and

GLOBALIZATION AND INEQUALITY

3

economic vulnerability (Nationsonline.org). In choosing the case studies both developed and less
developed countries were included. Given that there are only a handful of developed countries in
the world, the study only included a few while others are developed countries. Neoliberal
policies and procedures were not introduced until the 1980s so having half of the selected
countries be members throughout the transition allows us to compare the countries rooted in the
neoliberal agenda set forth by these organizations and those who are new to the process as in the
case of Russia.
Globalization and inequality have been researched on by many political scientists and
economists. The research is not recorded enough as there are areas that still need to be addressed.
When several counties and private companies continue to grow, globalization seems to be a
changing phenomenon. The lines between the private sector and the government have become
blurred, due to mutual dependency and common interest amongst the different entities. With the
amount of information available, globalization, and aggregate level can be set up with greater
ease. Globalization, however, is an asymmetrical process in which some governments,
companies, and individuals within a country get more than others. There exist two types of
inequality; horizontal and vertical inequality. Horizontal inequality exists between nations while
vertical inequality exists within nations. This paper focuses on the two latter, the vertical and the
quality of nations. The vertical inequality between nations is as a result of the current neoliberal
perspective the world has adopted with less developed countries.
"Neoliberalism involves both a set of theoretical principles and a collection of sociopolitical practices, all of which are directed towards extending and deepening capitalist market
relation and most spheres of our social lives" (Saad-Filho & Johnston 2005.) In other words,
Neoliberalism approaches globalization an inevitable and vital, therefore it should be advanced

GLOBALIZATION AND INEQUALITY

4

despite whatever the repercussions may be. Neoliberal policies include having countries openly
trade with one another, typically without tariffs, privatizing state-owned enterprises,
deregulation, and other economic policies meant to promote a free and competitive market.
Inequality within a nation is inherent, but the argument is that in some countries it is not only
exploited, but the level of inequality is avoidable. Beyond its avoidance, and central to the
argument it that current world organizations like the World Bank, International Monetary Fund,
and World Trade Organization are perpetuating and have increased inequality within these
nations with their influence and neoliberal regulations. The working of the international
organizations has made high levels of inequality in countries possible, as they create an attractive
environment for foreign governments and industry leaders to exploit. Less developed countries,
in particular, have a surplus of low skilled workers due to their lack of infrastructure, and ability
to provide education and trade. This, in turn, makes these workers expendable and the policies
set forth by the groups above have influenced the leaders of the country's economy to keep
wages low in the hopes of bringing more business (products) to the countries' in question.
Neo-liberal policy and inequality
The neoliberal economic policy has brought upward growth increasing inequality threat
and impeding economic growth across the world. This is according to the International Monetary
Fund (IMF). Neoliberalism is an ancient economic ideology since the 1980s that aims to
champion for a free market approach to policymaking: upholding expedient such as deregulation,
privatization, and public spending cuts. Over the years theses ideology has been championed on
by many political scientists and economists, but currently, it seems to jeopardize the whole
exercise of inequality across the world.

GLOBALIZATION AND INEQUALITY

5

"Instead of delivering growth, some neoliberal policies have increased inequality, in turn
jeopardizing durable expansion," the senior IMF economists said. He further expands that the
liberalization has acted as a tool of uplifting poverty among many individuals and have raised
efficiency in some privatizations. Some aspects of the neoliberal policies have not delivered as
expected across the globe. The benefits recorded regarding economic growth looks fairly
challenging to establish when considering various countries. The increment on the cost regarding
increased inequality is eminent. The cost incorporates the trade-off between the equity and the
growth of the neoliberal policies. Maximizing inequality affects the sustainability and level of
growth. Even if growth is important, the neoliberal policies champion that neoliberal policies
still need to consider the distributional effects. Currently, there is much evidence that inequality
can lower both the time frame and the level of growth.
To fix these economic damage policymakers should be more focused and determined in
redistributing policies more than they have in the past. There is a need to developing new
policies to curb some of the advance impacts. They should create awareness and expand
knowledge of the people through education and training to promote and expand the equality of
opportunities across the global.
To address the question of increasing vertical inequality within nations, there must be a
definition of what is being addressed. Generally speaking, there are two types of inequality;
horizontal being inequality between nations and vertical being inequality being within nations
themselves. A review of the literature demonstrates that there are divergent results on the topic of
globalization and inequality that political scientists have focused on. The political scientists that
have focused on the scholarship of horizontal income inequality claim that increased economic
market integration has led to a decline in global income inequality (Firebaugh and Goesling

GLOBALIZATION AND INEQUALITY

6

2004). Glenn Firebaugh used the Gini coefficient index to measure the change in horizontal
income inequality from 1978 to 1998 and discovered that horizontal income inequality has fallen
by 4.9% (2004). The driving force behind this occurrence has been the increased economic
development that China and India have experienced since 1970's. Ho-Fung Hung and Jaime
Kucinskas state "these two countries constitute nearly 40 percent of the world's population and
experienced average income growth rates three to four times the world average over the past
quarter-century," (2011).
A case study of Haiti and China
Currently, Haiti is faced with many situations; Haiti is the hungriest country in the world
after Somalia and Afghanistan. It is the poorest country in the western hemisphere and also in the
world. Haiti ranks 149 out of 183 on the United Nations Human Development Index. Haitian
trade and external support are aided by the United States. The World Bank has also established
twenty-three active projects in Haiti. The projects are focused on ensuring the development of
infrastructure, housing and transport within the country. The World Bank from time to time
disburses funds to aid in the effectiveness of the projects. Job employment is an issue in Haiti;
many Haitians have migrated in search of jobs in other countries. In the manufacturing industry
in Brazil, many support the migration of Haitian to Brazil.
From the facts above, one can reach the opinion that; globalization has not uplifted the
poverty situation in Haiti. It is recorded that eighty percent of Haiti's population still faces
poverty. International communities should come together to help in development and growth of
Haiti.

GLOBALIZATION AND INEQUALITY

7

From 2005, China has made a great investment of more than sixty billion in sub-Saharan Africa.
They have invested in nickel, copper, platinum, and manganese. China can be categorized as one
of the largest trading partners with African countries; it is surpassing the United States. China is
diverse; trading with Latin America has also drastically increased. China's integration into the
global world has aid its development a great deal. Communities that are on the frontline to
integrate with China experience prosperity.
China compared to Haiti is more developed, and its glo...

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