economic growth and development and globalisation essay

Is globalization an engine of economic development?

All people living in today's world have experienced some of the benefits of globalization: the expansion of foreign trade has meant that vaccines and antibiotics produced in a handful of countries have been widely used all over the world to eradicate diseases and treat deadly infections. Since 1900, life expectancy has increased in every country in the world , and global average life expectancy has more than doubled .

Globalization has also been a key driver of unprecedented economic growth and as a result, we now live in a world with much less poverty .

Yet these achievements are the product of multiple forces, and globalization is only one of them. The increasing potential of governments to collect revenues and redistribute resources through social transfers has been another important factor contributing to improved standards of living around the world. Neither free market capitalism nor social democracy alone has been responsible for economic development. On the contrary, they often work together.

In this blog post, we discuss in more detail the evidence behind these claims.

The rise of globalization

International trade has been part of the world economy for thousands of years . Despite this long history, the importance of foreign trade was modest until the beginning of the 19th century—the sum of worldwide exports and imports never exceeded 10% of global output before 1800 .

Then around 1820 things started to change quickly. Around that time, technological advances and political liberalism triggered what we know today as the 'first wave of globalization'.

This first wave of globalization came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a collapse in international trade. But this was temporary and after the Second World War, trade started growing again. This second wave of globalization, which continues today, has seen international trade grow faster than ever before. Today, around 60% of all goods and services produced in the world are shipped across country borders. (In our entry on International Trade you find more details regarding the particular features that characterize the first and second waves of globalization.)

The chart here shows the remarkable growth of foreign trade since 1800. The series shows the value of world exports in constant prices—world exports have been indexed, so that values are relative to the value of exports in the year 1913.

The broad trend in this chart is striking: Trade followed an exponential path. Other metrics of trade, such as the share of imports and exports in global output , tell the same story.

In just a few generations, globalization completely changed the world economy.

The correlation between globalization, economic growth and poverty reductions

In the period in which international trade expanded, the average world income increased substantially and the share of the population living in extreme poverty went down continuously.

GDP per capita is a common metric used for measuring national average incomes. By this measure, average incomes followed a similar growth pattern to international trade. For thousands of years, global GDP per capita had a negligible growth rate: technological progress in the preindustrial world produced people rather than prosperity . Over the course of the 19th century, however, alongside the first wave of globalization, this changed substantially. In this period, economic growth started accelerating and global GDP per capita has been growing constantly over the last two centuries—with the exception of lower growth rates during the years between the two world wars. (You can read more about these trends in our entry on Economic Growth .)

Regarding extreme poverty, the available evidence shows that up until 1800, the vast majority of people around the world lived in extreme deprivation , with only a tiny elite enjoying higher standards of living. In the 19th century we began making progress and the share of people living in extreme poverty started to slowly decline. This trend is shown in the chart here. As we can see, today, two hundred years later, the share of people living in extreme poverty is less than 10%. This is an achievement that would have been unthinkable to our ancestors. 1

The stark trend in the incidence of poverty is particularly remarkable if we consider that the world population increased 7-fold over the same period. In a world without economic growth, such an increase in the population would have resulted in less and less consumption for everyone. And yet, as the chart shows if you switch to the 'absolute' view, the exact opposite happened: in a time of unprecedented population growth, we managed to lift more and more people out of poverty.

Living with less than 1.90 dollars per day is difficult by any standard—the term 'extreme poverty' is appropriate. However, recent estimates show that no matter what global poverty line you choose, the share of people below that poverty line has declined . (In our entry on Global Extreme Poverty you can find more evidence supporting this important historical achievement.)

The link between globalization and absolute poverty

The fact that trade and average incomes followed similar upward trajectories in a period of unprecedented poverty reduction is of course not proof of a causal relationship. However, both evidence and theory suggest that what we observe is more than an accidental correlation.

Trade facilitates efficiency gains that are materialized in aggregate economic growth. From a conceptual point of view, international trade contributes to economic growth by allowing nations to specialize, in order to produce goods that they are relatively efficient at producing, while importing other goods. There is substantial empirical evidence backing this causal mechanism .

If trade leads to growth in average incomes, what does this mean for poverty? In a much-cited 2002 academic article, David Dollar and Aart Kraay empirically showed that on average, the income of the poorest grew one-for-one with average national incomes over the last four decades of the 20th century. 2 This means that trade has helped raise the incomes of the poor as much as it has helped raise average incomes. More recent articles have confirmed the original findings from Dollar and Kraay. 3

When taken together, the evidence thus tells us that globalization has contributed to reducing poverty around the world.

The link between globalization and inequality

That globalization is good for the poor is a statement that is true on average . In some countries and in some periods the poor did better than average, and sometimes they did worse.

Looking at the long-run average effect is very helpful to form an opinion regarding broad trends. However, these broad trends are not necessarily informative about how trade has affected the distribution of incomes generally; nor about how trade has affected specific groups of people in specific periods.

The same economic principles that suggest we should lend serious consideration to the efficiency gains from trade, suggest that we should do likewise for the distributional consequences from trade. If globalization generates growth by allowing countries to specialize in the production of goods that intensively use locally abundant resources, it is natural to expect that differences in the way resources are endowed will translate into differences in the way benefits are reaped.

If we take a look at the data, we observe that the process of globalization and growth that led to historical achievements in poverty reductions went along with a substantial increase in global income inequality .

The chart shows this by comparing the global income distribution at three points in time: 1800, 1975, and 2015. We can see that the world today is both much richer and more unequal than it was in 1800.

There are two forces that can drive global income inequality : within-country differences in incomes, and between-country differences in incomes. Which of the two is driving the trend we observe in this chart? The evidence suggests that it is the latter—global inequality increased in the period 1800-1975 because the countries that industrialized earlier grew faster.

In 1800, only a few countries had achieved economic growth while the majority of the world still lived in poverty. In the following century, more and more countries achieved sustained economic growth, and the global income distribution became much more unequal: there was a clear divergence between early-industrialized countries (where extreme forms of poverty were virtually eradicated) and the rest of the world. In the following decades and up until today, early-industrialized countries have continued growing, but the biggest changes have taken place at the bottom of the distribution. Today, global income inequality is lower than it was in 1975. But still, despite the ‘catch-up growth’ in recent decades, our world today is both much richer and more unequal than it was in 1800.

So, what does the data tell us about globalization? Over the last century, the gains from international trade were substantial and generally equally distributed within countries, but global inequality increased because for a long period early-industrialized countries had larger gains to distribute among their citizens.

The distribution of the gains from trade

The above conclusion that globalization has not had substantial effects on global inequality may seem paradoxical to some people—there is substantial evidence of growing inequality in many countries, including countries that have vehemently pursued trade liberalization. A notable case in point is the US, where income inequality has been on the rise in the last four decades, with incomes for the bottom 10% growing much more slowly than incomes for the top 10% . (You can read more about these within-country trends in our entry on Income Inequality .)

How can we reconcile these two empirical facts? In a recent article, Elhanan Helpman provides an answer informed by a meta-analysis of the available evidence: factors such as automation, technological changes, and market frictions, have contributed to the rise of inequality more than growth in international trade has. 4

If this is the case, then why has the view that globalization is bad for the working class captured the political debate in rich countries? Part of the answer has to do with the fact that people are misinformed about the evidence. But another important reason is that, while globalization may not have been the prime cause of growing inequality within many rich countries, it remains true that there are specific groups of people who have not reaped many of the benefits from globalization in recent years.

Daniel Trefler published a paper in 2004 showing that the 1989 free trade agreement between the US and Canada temporarily increased (for about three years) the level of unemployment in Canada. 5 And David Autor and colleagues published another much cited article in 2013 showing that imports from China had diverging effects on employment across various geographical zones in the US, with employment declining more in zones where industries were more exposed to import competition from China. 6

These effects on specific groups are real and need to be taken into account, even if they do not imply that ‘globalization is bad for the poor’. Public policies should protect and compensate workers whose earnings are adversely affected by globalization. And as a matter of fact, public policies in rich countries have done this to some degree in the past. As painful as job losses are for the affected workers, it is thanks to unemployment benefits and other safety-net policies that we do not observe unemployment leading to widespread extreme poverty in rich countries.

Which way forward?

Has globalization been an engine of economic development? The answer is yes. Globalization has had a positive effect on economic growth, contributing to rising living standards and the reduction of extreme poverty across the world.

Can we conclude from this that we should strive for a ‘hyper-globalized’ world economy in which there is completely free trade with no room for public policy and regulation? The answer is no.

The point is that the worldwide historical achievements that we can attribute to globalization are not independent of other factors, including the potential of governments to redistribute resources. Indeed, as the last chart here shows, the process of globalization that we have experienced in the last couple of centuries took place at the same time as governments increased their potential for taxing and redirecting resources through public policies, particularly social transfers.

How much integration in global markets would be optimal? I would be skeptical of anyone who offers a definitive answer. But it seems unlikely that the optimal degree of integration is either of the two extremes—neither ‘hyper-protectionism’ nor ‘hyper-globalization’ is likely to be the answer.

Policies aimed at liberalizing trade, and policies aimed at providing social safety nets, are often advocated by different groups, and it is common for these groups to argue that they are in conflict. But both economic theory and the empirical evidence from the successful fight against extreme poverty suggests this is a mistake: globalization and social policy should be treated as complements rather than substitutes.

The data in the chart here measures ‘extreme poverty’ as defined by the World Bank; people are considered to live in extreme poverty if they have to get by with less than 1.90 ‘international dollars’ per day. International dollars are a hypothetical currency that corrects incomes for differences in price levels in different countries as well as for inflation (explained by us here ).

Dollar, David, and Aart Kraay. "Growth is Good for the Poor." Journal of economic growth 7.3 (2002): 195-225.

See, for example, Dollar and Kraay (2004), "Trade, growth, and poverty." The Economic Journal 114.493 (2004) ; and Dollar, Kleineberg and Kraay (2014), "Growth, inequality, and social welfare : cross-country evidence." Policy Research Working Paper.

Helpman, Elhanan. Globalization and Wage Inequality. No. w22944. National Bureau of Economic Research, 2016.

Trefler, Daniel. "The long and short of the Canada-US free trade agreement." The American Economic Review 94.4 (2004): 870-895.

David, H., David Dorn, and Gordon H. Hanson. "The China syndrome: Local labor market effects of import competition in the United States." The American Economic Review 103.6 (2013): 2121-2168.

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Open Access

Peer-reviewed

Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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7 (page 112) p. 112 Globalization and development

• Published: March 2018
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The relationship between globalization and development is contested. For some, globalization is a powerful force for poverty reduction and has led to leaps in life expectancy and other key dimensions of development. For others, globalization has negative implications and is seen as a source of growing inequality, poverty, unemployment, and environmental destruction. ‘Globalization and development’ considers the important aspects of globalization that have an impact on development: global financial flows and different types of financial investment; the promotion of equitable trade for developing countries; technological progress; international regulation and cooperation to prevent transfer pricing and tax avoidance; and the impact of international migration and the rise of refugees due to civil war and genocide.

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Critical Reflections on Globalisation and Development and Challenges Ahead

• First Online: 13 August 2019

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• Machiko Nissanke 4 &
• José Antonio Ocampo 5 , 6  

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This second overall chapter presents collective critical reflections on how globalisation has affected the course of economic development over the last four decades. We argue that despite its potential in accelerating economic growth and development through the spread and transfer of technology and the transmission of knowledge and information, globalisation as proceeded to date—corporation-led and finance-centred and largely market-driven integration process—has exposed itself to the reality that the process is unsustainable socially, economically and politically as well as ecologically, with discontents growing all around. There is urgency for us all to engage with the pivotal question how to make globalisation work for inclusive and sustainable development, and to arrest the tide of the political fallouts with grave consequences for the global community. Against this background, drawing on many insightful analyses provided by the chapter contributors to the Handbook, this chapter, as our collective narratives of the effects of globalisation on development, is organised under two themes: (i) the diverse development experiences of countries in the South under globalisation; and (ii) the growing inequality and its implications. We then proceed to discuss challenges facing us for finding a way to change the course and nature of globalisation, and indicate several pathways for making globalisation work for sustainable and inclusive development.

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Globalisation and the Challenges of Development: An Introduction

Is Globalizing ‘development’ Ethical? A View from the Pacific

Challenges of Rising Inequalities and the Quest for Inclusive and Sustainable Development

See also Williamson ( 2002 ), among others, for winners and losers from globalisation in modern history.

Reported in Fig. 3.1 in UNDP ( 2013 ).

Given this, the survey carried out for the World Economic Forum 2014 ranked widening income disparities as one of the greatest risks the global community faces today (World Economic Forum, 2013 ). The growing within-country inequality has been a main thematic topic selected to address in many reports by multilateral institutions over recent years (UNCTAD 2012 ; UNDP 2013 ; OECD 2011 , 2014 ; IMF 2017 and others).

Naturally, countries within each of the developing regions are heterogeneous in their globalisation experiences. While acknowledging country-specific experiences, the discussions herein reflect our attempt to discern overall patterns of the different regions’ experiences.

See, for example, Chap. 14 for the detailed comparative analysis of effects of alternative financial policy regimes on economic growth between the Asian and Latin American regions.

See Kojima ( 2000 ) for detailed presentation of this thesis. Lin ( 2011 ) also provides a description of the Flying-Geese pattern of economic development in the Asia-Pacific Region.

Baldwin ( 2012 ) attributes Asia’s success story under the ‘globalisation’s second unbundling’ to Asia’s ability to participate actively in international supply chains that have emerged from the huge reduction in the transport cost and transmission/communication cost in the late 1980s and the early 1990s. The ‘Factory Asia’ thus emerged along with the ‘Factory Europe’ and the ‘Factory of North America’.

Latin America had experienced a successful industrialisation and structural diversification process, which had started during the 1930s and was very dynamic in the first decades of the post-WWII post-war period. It peaked in the second half of the 1970s and was followed by deindustrialisation and stronger dependence on primary exports, with some exceptions (Mexico being the most important case, as it became an important manufacturing exporter). See Bértola and Ocampo ( 2012 ), chapters 4 and 5.

See Nissanke and Thorbecke ( 2008 , 2010 ) for a summary of the findings of case studies of the impact of globalisation on the poor in Asia.

See Thorbecke and Nissanke ( 2009 ) for more discussions on the effects on globalisation on poverty reduction in the Latin American region. The better record in poverty reduction in the 2000s in Latin America can be at least partially attributable to institutional innovations for social protection such as the rapid expansion in education coverage and some universal health and pension systems mixed with conditional cash transfer programs (CCTs).

Ocampo and Parra ( 2006 : tables 2 and 3, and figure 9).

A number of earlier studies (World Bank 1993 ; Ahuja et al. 1997 ; Campos and Root 1996 ) described the growth pattern of East Asian countries in the 1960s and 1970s as highly inclusive and viewed as a model of ‘shared growth’. As discussed later, however, such a condition has been steadily and considerably eroded as hyper-globalisation proceeded.

This is based on the survey results of income/consumption expenditures per household, expressed in 2011 Purchasing Power Parity (PPP) exchange rates.

On the other hand, referring to this decline, Bourguignon ( 2015 ) presents a longer historical series of global inequality and notes that from 1820 to the 1990s global inequality steadily rose, but it started declining gradually in the first decade of the twenty-first century, which is also to the narrowing ‘between-country’ inequality, reflecting the rise of average income of emerging economies.

Credit Suisse, Global Wealth Report 2018  and World Inequality Lab ( 2018 ).

Although the technological changes and the globalisation effects are often entered as a separate factor in accounting for the falling labour income shares in a number of empirical studies (e.g., IMF 2017 ), these two are closely bundled together from a perspective of developing countries, where skill-biased technological changes are embodied in goods and services imported from the rest of the world. Hence, technical changes can be seen as one element of globalisation effects.

See Basu ( 2003 ).

During the previous globalisation, there were, however, constraints on the movement of Asian, particularly Chinese and Indian labour, to territories that were considered to be destined for the white population, with notable cases being Australian and US restrictions in this regard. So, Asian migrants largely moved around the tropics.

Primary income distribution is the distribution of household incomes consisting of different factor incomes before tax and subsidies, whilst secondary income distribution is the distribution of household incomes after deduction of taxes and inclusion of transfer payments. Tertiary income distribution is the distribution of household incomes when imputed benefits from public expenditures are further taken into account.

It is also interesting to detect, in this thesis, a potential discord between economic liberalism in its neo-liberal genre and liberal democracies as political institutions, although these two are often presented together to the rest of the world signifying the virtue of the Western institutions over the others.

See Rodrik ( 2011 : 201–202), where lists of these policy packages associated with, and institutional requirements for, hyper-globalisation are presented.

European Union (EU) is a notable exception to this, as it tries to organise a democratic legitimacy at the regional level, while preserving nation states’ sovereignty. However, the recent crises within the EU plentifully demonstrate that it is not easy to guarantee the success and the sustainability of their political project.

This is discussed by one of us in Chap. 15 of this Handbook in the context of ensuring aid effectiveness and debt sustainability.

See Ocampo ( 2016 ) for more detailed analyses on these issues. He underscores how the ‘sovereignty paradox’ applied in the GPG provision presented in Kaul ( 2013 ) is related to Rodrik’s ‘globalisation paradox’ discussed earlier.

See Nayyar (2002), Stiglitz ( 2006 ) and Ocampo ( 2017 ).

Ocampo ( 2016 , 2017 ) contains detailed discussions on how to build a better global governance structure.

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Nissanke, M., Ocampo, J.A. (2019). Critical Reflections on Globalisation and Development and Challenges Ahead. In: Nissanke, M., Ocampo, J.A. (eds) The Palgrave Handbook of Development Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-14000-7_2

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Essays on Globalization and Economic Growth

ESSAYS ON GLOBALIZATION AND ECONOMIC GROWTH Constanza Isabel Vergara Delgadillo Jesús Fernández-Villaverde Globalization, characterized as enhanced trade integration among countries, has make nations vulnerable to forces emanating from their borders. The following essays contribute to the understanding of how forces of globalization interact with national economies. The first two chapters focus on a specific feature of globalization: the fragmentation of the production process across borders. The first chapter finds a novel way of solving a multistage version of Eaton and Kortum (2002)’s trade model, which contradicts previous findings that trade barriers have a larger impact when, not only final goods are traded, but also inputs along the production chain. Previous findings where based on unrealistic assumptions, that in this chapter are not made. The second chapter, estimates a multi-country version of the previous model, and evaluates the impact on the distribution of welfare amo...

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Gr. 10 T3 W4 Lesson: Economic Growth, Development and Globalisation

Grade 10 Term 3, Week 4 Lesson: Economic Growth, Development and Globalisation

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Effects of Economic Globalization

Globalization has led to increases in standards of living around the world, but not all of its effects are positive for everyone.

Social Studies, Economics, World History

Bangladesh Garment Workers

The garment industry in Bangladesh makes clothes that are then shipped out across the world. It employs as many as four million people, but the average worker earns less in a month than a U.S. worker earns in a day.

Photograph by Mushfiqul Alam

Put simply, globalization is the connection of different parts of the world. In economics, globalization can be defined as the process in which businesses, organizations, and countries begin operating on an international scale. Globalization is most often used in an economic context, but it also affects and is affected by politics and culture. In general, globalization has been shown to increase the standard of living in developing countries, but some analysts warn that globalization can have a negative effect on local or emerging economies and individual workers. A Historical View Globalization is not new. Since the start of civilization, people have traded goods with their neighbors. As cultures advanced, they were able to travel farther afield to trade their own goods for desirable products found elsewhere. The Silk Road, an ancient network of trade routes used between Europe, North Africa, East Africa, Central Asia, South Asia, and the Far East, is an example of early globalization. For more than 1,500 years, Europeans traded glass and manufactured goods for Chinese silk and spices, contributing to a global economy in which both Europe and Asia became accustomed to goods from far away. Following the European exploration of the New World, globalization occurred on a grand scale; the widespread transfer of plants, animals, foods, cultures, and ideas became known as the Columbian Exchange. The Triangular Trade network in which ships carried manufactured goods from Europe to Africa, enslaved Africans to the Americas, and raw materials back to Europe is another example of globalization. The resulting spread of slavery demonstrates that globalization can hurt people just as easily as it can connect people. The rate of globalization has increased in recent years, a result of rapid advancements in communication and transportation. Advances in communication enable businesses to identify opportunities for investment. At the same time, innovations in information technology enable immediate communication and the rapid transfer of financial assets across national borders. Improved fiscal policies within countries and international trade agreements between them also facilitate globalization. Political and economic stability facilitate globalization as well. The relative instability of many African nations is cited by experts as one of the reasons why Africa has not benefited from globalization as much as countries in Asia and Latin America. Benefits of Globalization Globalization provides businesses with a competitive advantage by allowing them to source raw materials where they are inexpensive. Globalization also gives organizations the opportunity to take advantage of lower labor costs in developing countries, while leveraging the technical expertise and experience of more developed economies. With globalization, different parts of a product may be made in different regions of the world. Globalization has long been used by the automotive industry , for instance, where different parts of a car may be manufactured in different countries. Businesses in several different countries may be involved in producing even seemingly simple products such as cotton T-shirts. Globalization affects services, too. Many businesses located in the United States have outsourced their call centers or information technology services to companies in India. As part of the North American Free Trade Agreement (NAFTA), U.S. automobile companies relocated their operations to Mexico, where labor costs are lower. The result is more jobs in countries where jobs are needed, which can have a positive effect on the national economy and result in a higher standard of living. China is a prime example of a country that has benefited immensely from globalization. Another example is Vietnam, where globalization has contributed to an increase in the prices for rice, lifting many poor rice farmers out of poverty. As the standard of living increased, more children of poor families left work and attended school. Consumers benefit also. In general, globalization decreases the cost of manufacturing . This means that companies can offer goods at a lower price to consumers. The average cost of goods is a key aspect that contributes to increases in the standard of living. Consumers also have access to a wider variety of goods. In some cases, this may contribute to improved health by enabling a more varied and healthier diet; in others, it is blamed for increases in unhealthy food consumption and diabetes. Downsides Not everything about globalization is beneficial. Any change has winners and losers, and the people living in communities that had been dependent on jobs outsourced elsewhere often suffer. Effectively, this means that workers in the developed world must compete with lower-cost markets for jobs; unions and workers may be unable to defend against the threat of corporations that offer the alternative between lower pay or losing jobs to a supplier in a less expensive labor market. The situation is more complex in the developing world, where economies are undergoing rapid change. Indeed, the working conditions of people at some points in the supply chain are deplorable. The garment industry in Bangladesh, for instance, employs an estimated four million people, but the average worker earns less in a month than a U.S. worker earns in a day. In 2013, a textile factory building collapsed, killing more than 1,100 workers. Critics also suggest that employment opportunities for children in poor countries may increase negative impacts of child labor and lure children of poor families away from school. In general, critics blame the pressures of globalization for encouraging an environment that exploits workers in countries that do not offer sufficient protections. Studies also suggest that globalization may contribute to income disparity and inequality between the more educated and less educated members of a society. This means that unskilled workers may be affected by declining wages, which are under constant pressure from globalization. Into the Future Regardless of the downsides, globalization is here to stay. The result is a smaller, more connected world. Socially, globalization has facilitated the exchange of ideas and cultures, contributing to a world view in which people are more open and tolerant of one another.

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Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

Parisa samimi.

1 Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia

2 Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Hashem Salarzadeh Jenatabadi

3 Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

Associated Data

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

This study uses a dynamic panel data model to investigate the effect of globalization on economic growth. The model can be shown as follows:

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

The Name and Definition of Indicators.

Funding Statement

The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Globalization: An Economic Perspective Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

Introduction

The concept of globalization, causes of globalization, critique of globalization, trade and redistribution, income inequality, positive effects of globalization.

Bibliography

Globalization is a hotly debated phenomenon associated with a slew of theories purporting to account for its adverse, negligent, or beneficial effects on a wide range of topics such as earnings inequality, standards of living, environment, cultures, societies, job security, and domestic production potential among others. Globalization refers to the tendency of capital, goods, services, workers, innovations, and information to move across borders, thereby increasing levels of integration in the world and changing patterns of economic growth. Unfortunately, people’s understanding of the link between the trend and many aspects associated with it is still highly partial.

Therefore, both the resistance and championing of globalization has taken shape at cultural and governmental levels. In the late 1980s, many Americans were extremely optimistic about the phenomenon. 1 However, in the early 1990s, when the World Trade Organization was established in an attempt to facilitate economic liberalization, the anti-globalization movement emerged. 2

Those who oppose globalization often complain about the widening economic gap between countries, rampant materialism, deterioration of democracy, job losses, and unfair working conditions among others. 3 Proponents of globalization argue that its benefits include, but are not limited to, increased competition, lowering consumer prices, economic growth, the proliferation of democracy, cultural enrichment, technological advancement, and dissemination of information. 4

This paper aims to explore numerous characteristics of globalization, its points of contestation, and acclaim. The paper attempts to show that both drawbacks and benefits of the international flow of knowledge, investment funds, and labor depend on what aspects of the phenomenon are examined.

Given the vague status of the term globalization, it is necessary to define what it is and what it is not before proceeding with the exploration of the phenomenon. The term, which was popularized by Levitt in 1983, should not be confused with the concept of globalism that refers to “aspirations for an end state of affairs wherein values are shared by or about all the world’s five billion people.” 5 Neither does globalization describe the world in which states engage in interaction with each other without losing their autonomy. For example, the existence of the European Union, which is a supranational project, requires the partial dissolution of autonomy of its member states; therefore, the union exhibits characteristics of both internationalization and denationalization. 6

It means that globalization is not a project that seeks to dismantle the nation-state system. Also, the creation of a supra-national government cannot be considered a part of the process commonly referred to as globalization. Finally, the global development, which has been instigated by the policies aimed at the deregulation of financial transactions as well as the elimination of some restrictions on international trade, does not aim at equitable dissemination of its costs and benefits among participating parties. After all, free trade cannot be equated with fair trade. 7 It is hard to deny that this point automatically renders some criticism of globalization invalid.

It can be established with a high level of certainty that globalization is a transformational process. Furthermore, this process is closely linked with the concepts of internationalization and regionalization. The most interesting part of this connection is that strengthening of national activities on both international and regional levels can result in the promotion of globalization. It has to do with the fact that internationalization and regionalization “facilitate a decoupling from the national arena.” 8 Therefore, it can be argued that globalization is an inevitable feature of the modern world.

After having established what globalization is, it is necessary to consider its key causes. The following factors have often been named as major contributors to the promotion of globalization: neoliberalism, financial liberalization, liberalization of capital transactions, the New Industrial Revolution, and the collapse of the Soviet Union. 9 Neoliberalism has been pointed to as the main factor responsible for the evolution of globalization. The concept refers to the deliberate attempt of governments to liberalize capital movement, reduce spending, and promote laissez-faire economics. The movement aims to eliminate government interference with the market and opposes discretionary economic policies.

Also, distinguished scholars of neoliberalism such as Hayek and Friedman have wanted to get rid of as many regulations as possible, thereby showing their respect for individual freedom. 10 Both Thatcher and Reagan have shown their support for what they have considered being a social philosophy, thereby helping neoliberalism to enter mainstream economic thought. Financial liberalization, the aim of which is to dismantle international regulation has helped to “widen the scope for procurement of capital and investment.” 11 Financial liberalization activities have resulted in the dilution of the Glass-Steagall Act. Furthermore, the movement has led to the emergence of hedge funds and private equity funds as well as a dramatic increase in the use of securities.

Liberalization of capital transactions is a movement that was initiated by the International Monetary Fund (IMF) in the 1990s after the collapse of the Breton Woods system. 12 Through foreign direct investment, the movement has stimulated economic development in Brazil and India. It should be mentioned that liberalized capital markets can result in numerous inefficiencies stemming from asymmetric information problems. The New Industrial Revolution is another cause of globalization. The revolution started in the 1980s with the creation of the IT industry. 13 The rapid growth of the industry has offered unique possibilities for outsourcing. The collapse of the Soviet Union was another major stimulus for the evolution of globalization.

It is beyond the scope of this paper to take an integrated approach to analyze globalization. Therefore, while discussing the points of contention with globalization, it is necessary to omit the social and environmental implications of the process and instead focus on foreign trade and income inequality that often results in the emergence of political conflict and populist backlash.

The contentious nature of globalization stems from its redistributive implications. 14 The Stolper-Samuelson theorem, which stipulates that under the conditions of free-trade, in an economy with two products and two factors of production, a factor used for the production of importable goodwill inevitably undergoes a reduction of its earnings. 15 Therefore, to anyone familiar with the theory, it is clear that under competitive conditions, trade liberalization always results in losses of varying magnitude. Furthermore, when it comes to the magnitude of the redistributive effects of the liberalization of trade, it always increases with the dissolution of trade barriers, thereby leading to smaller efficiency gains.

The distributional predictions of the Stolper-Samuelson theorem can be evidenced in the consequences of the North American Free Trade Agreement (NAFTA) for the US labor markets. Hakobyan and McLaren, who have measured the effects of the agreement by analyzing industry-specific census data, argue that American regions without tariff protection have experienced a steeper decline in wages than those localities that have been protected by tariffs. 16 Furthermore, the authors point to the fact that unskilled workers have suffered the most—the growth of their wages has reduced by 8 percent. 17 When it comes to the industry effect of the agreement, unprotected industries exposed to the trade with Mexico have contracted by 17 percent. 18

Trade-poverty nexus has often been presented by opponents of globalization. This connection can be subdivided into three major components: trade-induced growth, trade-induce shifts in prices and income, and trade-induced patterns of employment. 19 There is no disputing the fact that open markets facilitate the spread of information, new technologies, and capital goods, which results in the emergence of the economies of scale and increased competitiveness. As a result of the more effective distribution of resources, poverty in urban areas tends to increase. Castilho, Menendez, and Sztulman who have looked at the effects of agricultural trade across Brazilian states in the period from 1987 to 2005 argue that trade liberalization favors the growth in poverty in rural areas. 20 Furthermore, the authors argue that the ever-increasing integration of Brazilian states into world markets has resulted in the rise in poverty levels. 21

A cross-country comparison of income inequality performed with the help of Gini indices shows that globalization has resulted in substantial income differences on both regional and country levels. According to Jaumotte, Lall, and Papageorgiou, “while inequality has risen in developing Asia, emerging Europe, Latin America, the Newly Industrialized Economies, and the advanced economies over the past two decades, it has declined in some sub-Saharan African countries.” 22 The authors state that among the largest world’s economies, income inequality has declined only in France, whereas India and China have experienced a sharp increase in the disparities of the income distribution. 23 It means that during the recent phases of globalization, most countries have witnessed a widening gap between the incomes of their citizens.

Proponents of globalization argue that even though the process has not helped to eliminate the problem of income inequality in the developed nations, it has succeeded in reducing income discrepancies between citizens of the developing nations. Globalization has facilitated foreign direct investment (FDI), thereby shifting the pattern of the income distribution among different economies. Numerous studies point to the fact that increasing flows of FDI into nations such as India and China have led to the reduction of inequality gaps in terms of income. 24 It has to do with the fact that FDI flows lead to “a general rise in the capital quantity in the developing countries, which subsequently means that the marginal physical product of labor increases” thereby raising both real and nominal wages. 25

Another point habitually discussed by proponents of globalization is the decrease in the number of people living below the poverty line. According to Sang-Hyup, who investigated the economic benefits of globalization, there has been a reduction of people living on less than $1.25 per day in the period from 1980 to 2005. 26 Furthermore, the developing countries have experienced steeper GDP growth rates than the developed countries since 1996. 27 Therefore, it can be argued that despite substantial differences in sizes of economies between countries affected by globalization, more parties have partaken in the benefits of the process than those that have only experienced its costs. Also, the reduction in global poverty levels suggests that globalization has been a positive force in the lives of extremely poor people in the world.

The promotion of economic growth is another positive effect of globalization. A study on the economic development of the Organization of Islamic Cooperation (OIC) shows that globalization has a positive net effect on growth. 28 The authors of the study attribute this effect of globalization to the increase in the size of global markets as well as a more efficient allocation of resources that allows OIC countries to specialize in economic activities in which they have a comparative advantage. 29

Moreover, the researchers claim that a rapid spread of knowledge has led to increased productivity and technological innovation. 30 It can be argued that the implementation of new technological solutions requires higher levels of spending in the development of human capital, which directly promotes economic growth. Also, the information and financial openness inevitably lead to the creation of stronger financial systems that allow developing countries to benefit from globalization.

Greater mobility of capital, information, workers, goods, and services is linked by proponents of the phenomenon with a positive effect on human well-being. The multi-dimensional effects of globalization in the period from 1970 to 2010 have been explored by Mukherjee and Krieckhaus 31 who argue that “on balance, all forms of globalization positively affect well-being.” Similarly to other proponents of globalization, the authors claim that international treaties lead to the reduction of a conflict whose negative effects diminish human well-being. 32

Furthermore, Mukherjee and Krieckhaus espouse the belief that the IMF and World Bank are not responsible for the poor economic performance of the countries that have been influenced by these international bodies. 33 It is hard to disagree with authors in that the existence of international programs such as the United Nations Development Program (UNDP) and the United Nations Children’s Fund (UNICEF) helps to decrease the amount of misery in the world, thereby improving human well-being.

Globalization is a process that attracts extremely contradictory perspectives. The discussion of the benefits of globalization in this paper has not been sidetracked by the analysis of extremely important but non-economic issues such as climate change, cultural appropriation, and human rights. Instead, the paper has focused on the reshaping of the patterns of global trade, income inequality, economic growth, and poverty.

It can be argued that despite a great deal of emphasis on the unequal distribution of benefits of globalization among participating parties that is often pointed to as a major drawback of the phenomenon by its opponents, the reduction in the prices of goods have benefited consumers across the world. However, it is impossible to deny that during the recent phases of globalization, most developed countries have experienced a widening gap between the incomes of their citizens. This is a negative effect of globalization, which has to be taken into account when assessing the impact of the process on the world economy.

Taking into consideration the fact that globalization is associated with economic growth, it can be argued that it improves the global economy. Furthermore, the process has facilitated the movement of labor across state borders, thereby helping workers to sell their skills in the areas of the world, which are the most appreciative of them. Other positive effects of globalization include, but are not limited to, increased competition, the proliferation of democracy, cultural enrichment, and dissemination of information. However, given many negative factors associated with the phenomenon, it can be concluded that globalization has both positive and negative effects on the world’s economy.

Castilho Marta, Marta Menéndez, and Aude Sztulman “Trade Liberalization, Inequality, and Poverty in Brazilian States” World Development, August 2 nd , 2012, pp. 821–835.

De la Dehesa Guillermo, What do we Know About Globalization: Issues of Poverty and Income Distribution, Carlton, 2007, pp. 112-115.

Dignam Alan and Michel Galanis, The Globalization of Corporate Governance, London, 2009, p. 90.

Ekmekcioglu Ercan “The Effects of Globalization on World Income Inequality” International Journal of Academic Research in Business and Social Sciences, April 13 th , 2012, pp. 140-145.

Hany Makhlouf “Facets of Globalization” International Journal of Business and Social Science, January 2 nd , 2014, pp. 59-64.

Hirai Toshiaki, Capitalism and the World Economy: The Light and Shadow of Globalization, Abington, 2015, p. 9.

Hirst Paul, Grahame Thompson, and Simon Bromley, Globalization in Question, Cambridge, 2009, pp. 24-27.

Jaumotte Florence, Subir Lall, and Chris Papageorgiou “Rising Income Inequality: Technology, or Trade and Financial Globalization?” IMF Economic Review, May 21 st , 2013, pp. 271-309.

Mukherjee Nisha and Jonathan Krieckhaus “Globalization and Human Well-Being” International Political Science Review, June 12 th , 2011, pp. 150-170.

“Pros and Cons of Globalization” InternationalRelations . Web.

Samimi Parisa and Hashem Jenatabadi “Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities” PLOS, April 10 th , 2014, 70-94.

Sang-Hyup Shin “A Study on the Economic Benefits of Globalization: Focusing on the Poverty and Inequality Between the Rich and the Poor” International Area Review, September 15 th , 2009, pp. 191-214.

Seay W. “The Birth of the World Economy and Finance.” Econ 491: Virginia Commonwealth University, Summer 2017.

Shushanik Hakobyan and John McLaren “Looking for Local Labor Market Effects of NAFTA” Review of Economics and Statistics, October 16 th , 2016, pp. 728–741.

Willarts Barbara, Alberto Garrido, and Ramon Liamas, Water for Food Security and Well-Being in Latin America and the Caribean: Social and Environmental Implications for a Globalized Economy, Oxon, 2014, p. 121-124.

• “Pros and Cons of Globalization” international relations. Web.
• Alan Dignam and Michel Galanis, The Globalization of Corporate Governance, London, 2009, p. 90.
• W.Seay. “The Birth of the World Economy and Finance.” Econ 491: Virginia Commonwealth University, Summer 2017.
• Alan Dignam and Michel Galanis, The Globalization of Corporate, p. xiv.
• Toshiaki Hirai, Capitalism and the World Economy: The Light and Shadow of Globalization, Abington, 2015, p. 9.
• Toshiaki Hirai, Capitalism, p. 9.
• Guillermo de la Dehesa, What do we Know About Globalization: Issues of Poverty and Income Distribution, Carlton, 2007, pp. 112-115.
• Guillermo de la Dehesa, What do we Know, pp. 112-115.
• Paul Hirst, Grahame Thompson, and Simon Bromley, Globalization in Question, Cambridge, 2009, pp. 24-27.
• Hakobyan Shushanik and John McLaren “Looking for Local Labor Market Effects of NAFTA” Review of Economics and Statistics, October 16 th , 2016, pp. 728–741.
• Barbara Willards, Alberto Garrido, and Ramon Llamas, Water for Food Security and Well-Being in Latin America and the Caribean: Social and Environmental Implications for a Globalized Economy, Oxon, 2014, p. 121-124.
• Marta Castilho, Marta Menéndez, and Aude Sztulman “Trade Liberalization, Inequality, and Poverty in the Brazilian States” World Development, August 2 nd , 2012, pp. 821–835.
• Florence Jaumotte, Subir Lall, and Chris Papageorgiou “Rising Income Inequality: Technology, or Trade and Financial Globalization?” IMF Economic Review, May 21 st , 2013, pp. 271-309.
• Florence Jaumotte, Subir Lall, and Chris Papageorgiou “Rising Income Inequality,” pp. 271-309.
• Ercan Ekmekcioglu “The Effects of Globalization on World Income Inequality” International Journal of Academic Research in Business and Social Sciences, April 13 th , 2012, pp. 140-145.
• Shin Sang-Hyup “A Study on the Economic Benefits of Globalization: Focusing on the Poverty and Inequality Between the Rich and the Poor” International Area Review, September 15 th , 2009, pp. 191-214.
• Parisa Samimi and Hashem Jenatabadi “Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities” PLOS, April 10 th , 2014, 70-94.
• Nisha Mukherjee and Jonathan Krieckhaus “Globalization and Human Well-Being” International Political Science Review, June 12 th , 2011, pp. 150-170.
• Ibid., 156.
• Nisha Mukherjee and Jonathan Krieckhaus “Globalization,” pp. 150-170.
• Globalization of the Chinese Manufactories
• Globalization's Benefits in Kazakhstan
• Women in Developing Countries: Globalization, Liberalization, and Gender Equality
• Benefits of Trade Liberalization Measures on Automobile Industry
• Rebuttal to “No Fair Trade” by Joseph Stiglitz
• Old World Long-Distance Trade and Globalization
• Capitalism and Its Influence on Globalization
• Globalization and Income Inequality Relationship
• Imported Products and Production Transformation
• Globalization, Its Winners and Losers
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2020, September 8). Globalization: An Economic Perspective. https://ivypanda.com/essays/globalization-an-economic-perspective/

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IvyPanda . 2020. "Globalization: An Economic Perspective." September 8, 2020. https://ivypanda.com/essays/globalization-an-economic-perspective/.

1. IvyPanda . "Globalization: An Economic Perspective." September 8, 2020. https://ivypanda.com/essays/globalization-an-economic-perspective/.

IvyPanda . "Globalization: An Economic Perspective." September 8, 2020. https://ivypanda.com/essays/globalization-an-economic-perspective/.

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The State of Globalization in 2021

• Steven A. Altman
• Caroline R. Bastian

Trade, capital, and information flows have stabilized, recovered, and even grown in the past year.

As the coronavirus swept the world, closing borders and halting international trade and capital flows, there were questions about the pandemic’s lasting impact on globalization. But a close look at the recent data paints a much more optimistic picture. While international travel remains significantly down and is not expected to rebound until 2023, cross-border trade, capital, and information flows have largely stabilized, recovered, or even grown over the last year. The bottom line for business is that Covid-19 has not knocked globalization down to anywhere close to what would be required for strategists to narrow their focus to their home countries or regions.

Cross-border flows plummeted in 2020 as the Covid-19 pandemic swept the world, reinforcing doubts about the future of globalization. As we move into 2021, the latest data paint a clearer — and more hopeful — picture. Global business is not going away, but the landscape is shifting, with important implications for strategy and management.

• Steven A. Altman is a senior research scholar, adjunct assistant professor, and director of the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management .
• CB Caroline R. Bastian is a research scholar at the DHL Initiative on Globalization.

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Legal Perspectives on Competition Law and Economic Development

Effective competition law enforcement is pivotal for promoting economic stability and driving innovation in both developed and developing economies. In developed economies, robust regulatory frameworks safeguard fair competition, driving economic growth and stability. However, developing nations often face market failures and imperfections, leading to anti-competitive practices that hinder growth. A well-designed competition law framework can address these issues, promoting consumer welfare and efficiency. As the global economy becomes increasingly interconnected, international cooperation and enforcement are essential in combating anti-competitive practices. A deeper examination of the legal perspectives on competition law and economic development reveals the complex dynamics at play, and the opportunities that exist for fostering sustainable economic growth.

Table of Contents

Competition Law in Developed Economies

In the sphere of developed economies, competition law plays a vital role in fostering a level playing field, thereby promoting economic efficiency and innovation. This is achieved through the establishment of regulatory frameworks that guarantee fair competition among businesses, which in turn, drives economic growth and stability. Effective competition law enforcement promotes economic stability by preventing anti-competitive practices that can lead to market dominance and stifle innovation. Additionally, it encourages businesses to invest in research and development, leading to the creation of new products and services that benefit consumers.

In developed economies, competition law is often characterized by robust regulatory frameworks that are designed to prevent anti-competitive behavior. These frameworks provide a clear set of rules and guidelines that businesses must adhere to, guaranteeing that they operate in a fair and transparent manner. The enforcement of competition law in developed economies has been instrumental in promoting economic stability and driving innovation, ultimately leading to improved economic outcomes for consumers and businesses alike.

Market Failures in Developing Nations

In developing nations, market failures are often exacerbated by imperfect market structures, which can lead to the concentration of economic power and limit competition. Information asymmetry issues also persist, where consumers and businesses lack access to accurate and timely information, further distorting market outcomes. In addition, state intervention, intended to correct these failures, can sometimes fail to achieve its objectives, thereby perpetuating market inefficiencies.

Imperfect Market Structures

Economic development in emerging markets is often hindered by imperfect market structures, which lead to market failures that stifle growth and innovation. One of the primary concerns in this regard is the presence of monopoly power, which can lead to market dominance. When a single entity or a small group of entities control a significant portion of the market, they can manipulate prices, restrict output, and stifle competition. This can lead to higher prices, reduced innovation, and decreased consumer welfare.

In developing nations, the prevalence of imperfect market structures can be particularly damaging. The lack of effective competition laws and enforcement mechanisms can allow firms to exploit their market power, further exacerbating the negative consequences. Additionally, the concentration of market power can lead to unequal distribution of wealth, perpetuating income inequality and social unrest. To address these concerns, it is crucial to implement and enforce robust competition laws that promote competition, prevent monopolization, and protect consumer interests. By doing so, emerging markets can create a more level playing field, fostering economic growth, innovation, and development.

Information Asymmetry Issues

Market failures in developing nations can also be attributed to information asymmetry issues, which can have far-reaching consequences for economic development. Information asymmetry arises when one party has access to more or better information than the other party in a transaction. This can lead to market failures as parties with more information may exploit those with less information, resulting in inefficient outcomes.

In developing nations, information asymmetry issues are often exacerbated by limited access to information, inadequate institutional frameworks, and weak regulatory environments. This can result in a lack of transparency, reduced competition, and increased rents for incumbent firms. To address these issues, policymakers must prioritize the development of robust institutional frameworks, improved data collection and dissemination, and enhanced regulatory oversight to promote transparency and competition. By doing so, they can help mitigate the negative consequences of information asymmetry and promote more efficient economic outcomes.

State Intervention Failure

Misguided state intervention can exacerbate market failures in developing nations, often with devastating consequences for economic development. In many instances, government intervention is intended to correct market failures, but it can lead to unintended and harmful consequences. This is particularly true in developing nations where institutional weaknesses and limited resources can hinder effective implementation of corrective measures.

State intervention failures can manifest in various ways, including:

• Government Inaction : Failure to address market failures can lead to perpetuation of inefficient market structures, thereby hindering economic development.
• Policy Inconsistencies : Incoherent and contradictory policies can create uncertainty, deterring investment and innovation.
• Cronyism and Rent-Seeking : State intervention can create opportunities for cronyism and rent-seeking, benefiting a select few at the expense of the broader economy.

Ultimately, state intervention failures can undermine trust in government institutions and perpetuate market failures, ultimately hindering economic development. It is vital to recognize the limitations of state intervention and adopt a more nuanced approach that addresses the root causes of market failures.

Promoting Consumer Welfare Efficiency

Ideal resource allocation is the cornerstone of a thriving economy, and promoting consumer welfare efficiency is an indispensable component of this pursuit. Efficient allocation of resources is pivotal to maximize social welfare, which is the ultimate goal of competition law. Price controls, a common interventionist measure, often undermine this objective by creating distortions in the market. For instance, price ceilings can lead to shortages, while price floors can result in surpluses, both of which impede efficient resource allocation. Additionally, price controls can stifle innovation and reduce incentives for firms to invest in research and development. In contrast, promoting consumer welfare efficiency through competition law encourages firms to innovate and reduce costs, ultimately leading to lower prices and better quality products for consumers. This, in turn, enhances social welfare by allocating resources to their most valuable uses. By promoting consumer welfare efficiency, competition law plays a paramount role in achieving peak resource allocation, which is necessary for a thriving economy.

Addressing Anti-Competitive Practices Globally

As competition law evolves, addressing anti-competitive practices globally becomes increasingly vital. To achieve this, enforcing global standards, combating cartel activity, and regulating mergers strictly are vital measures to guarantee fair market competition. These measures can help prevent anti-competitive behavior, promote consumer welfare, and maintain a level playing field for businesses worldwide.

Enforcing Global Standards

Across the globe, anti-competitive practices have become increasingly complex, necessitating the development of robust enforcement mechanisms to address these issues effectively. The need for effective enforcement is underscored by the importance of promoting fair competition, which is vital for economic growth and development.

To achieve this, global governance and international cooperation are pivotal. Governments, regulatory bodies, and international organizations must work together to establish and implement global standards for competition law enforcement. This can be achieved through:

• Harmonization of laws and regulations : Ensuring consistency in competition laws and regulations across jurisdictions to prevent inconsistencies and loopholes.
• Capacity building and technical assistance : Providing training and resources to countries with limited competition law enforcement capabilities to enhance their ability to detect and prosecute anti-competitive practices.
• International cooperation and information sharing : Facilitating collaboration and information exchange between countries to address cross-border anti-competitive practices and share best practices in enforcement.

Combating Cartel Activity

Cartel activity, a pernicious form of anti-competitive behavior, poses a significant threat to the integrity of markets worldwide. Effective cartel detection is vital to prevent harm to consumers and the economy as a whole. To this end, competition authorities have developed sophisticated methods to identify and prosecute cartel activity, including sophisticated data analysis and advanced forensic techniques. Whistleblower protection is also vital in encouraging individuals with inside information to come forward and report suspected cartel activity.

Robust whistleblower protection policies can provide a safe and secure channel for informants to report suspicious behavior, while also protecting their identity and ensuring their safety. In addition, leniency programs that offer reduced penalties or immunity to cartel participants who cooperate with authorities can be an effective tool in detecting and prosecuting cartel activity. By combining these strategies, competition authorities can more effectively combat cartel activity, promoting a level playing field and ensuring that markets operate fairly and competitively.

Regulating Mergers Strictly

Regulatory scrutiny of mergers and acquisitions is crucial to prevent the concentration of market power, which can stifle competition and innovation. Unchecked, mergers can lead to monopolies, undermining the competitive landscape and ultimately harming consumers. To address this, competition authorities worldwide have implemented merger control regimes, which subject transactions to rigorous review.

Key aspects of merger regulation include:

• Merger thresholds : Setting thresholds for deal values or market share to determine which transactions warrant scrutiny.
• Deal scrutiny : Conducting in-depth reviews of proposed mergers to assess their competitive impact.
• Remedies and enforcement : Imposing conditions or prohibiting deals that pose significant anti-competitive risks, with penalties for non-compliance.

Balancing Regulation and Innovation

In the quest for a dynamic and thriving market, the delicate balance between regulation and innovation has become a pressing concern. Effective regulatory frameworks are vital to promote competition and protect consumers, but overly restrictive rules can stifle innovation and hinder economic growth. In this regard, policymakers must strike a balance between regulating anti-competitive behavior and fostering an environment that encourages innovation and entrepreneurship.

Innovation hubs, such as Silicon Valley and Singapore, have demonstrated the importance of nurturing innovation ecosystems. By providing a supportive regulatory environment, these hubs have attracted investment, talent, and ideas, driving economic growth and job creation. Conversely, overly burdensome regulations can drive innovators to more permissive jurisdictions, depriving local economies of their potential benefits. Hence, policymakers must carefully design regulatory frameworks that promote innovation while protecting consumers and ensuring fair competition. This balance is pivotal to releasing economic development and achieving sustainable growth.

Achieving Sustainable Economic Growth

As the global economy continues to evolve, policymakers face a pressing challenge: how to sustain economic growth while mitigating its negative consequences. Achieving sustainable economic growth requires a multifaceted approach that balances economic development with social and environmental considerations.

To achieve sustainable growth, policymakers should focus on the following key areas:

• Fostering a green economy : By investing in renewable energy, sustainable infrastructure, and eco-friendly technologies, policymakers can reduce the environmental impact of economic growth while creating new opportunities for innovation and job creation.
• Developing human capital : Investing in education and training programs can help build a skilled and adaptable workforce, enabling countries to compete in the global economy while reducing poverty and inequality.
• Encouraging sustainable consumption and production patterns : By promoting sustainable consumption and production patterns, policymakers can reduce waste, pollution, and resource depletion, ensuring that economic growth is environmentally sustainable in the long term.

Frequently Asked Questions

How do small businesses navigate complex competition laws in emerging markets.

Small businesses in emerging markets navigate complex competition laws by forging local partnerships to tap into regional expertise, and by charting regulatory roadmaps to guarantee compliance, thereby mitigating risks and fostering sustainable growth.

Can Competition Law Enforcement Prioritize Social Welfare Over Economic Growth?

Prioritizing social welfare over economic growth in competition law enforcement is a nuanced debate, as it may exacerbate economic inequality and compromise social justice, highlighting the need for a balanced approach that reconciles these competing interests.

Do Trade Agreements Hinder or Promote Competition Law Enforcement Globally?

Trade agreements can both hinder and promote competition law enforcement globally, as they may create regulatory barriers to global harmonization, but also facilitate cooperation and coordination among nations to address cross-border anticompetitive practices.

How Can Regulators Balance Competition With Data Privacy Concerns?

Regulators can balance competition with data privacy concerns by establishing a robust Data Protection framework that guarantees transparency, consent, and accountability, within a well-defined Regulatory Framework that fosters innovation while safeguarding consumer trust and personal data.

Can Competition Law Address Income Inequality in Developing Economies?

In addressing income inequality, competition law can play a pivotal role by promoting economic empowerment through fair market access, thereby facilitating wealth redistribution and bridging the socio-economic divide in developing economies.