Growth Effects of Globalization in the Low Income African Countries: A Systems GMM Panel Data Approach

Rao, B. Bhaskara and Vadlamannati, Krishna Chaitanya (2009): Growth Effects of Globalization in the Low Income African Countries: A Systems GMM Panel Data Approach.

Abstract

The relationship between globalization and economic growth in the developing countries remains controversial. Liberals argue that globalization will lead to higher economic growth and prosperity. Skeptics contend the opposite, where globalization processes might lead to increased inequality and lower economic growth. Previous studies have examined this issue with single indicators such as trade openness or foreign direct investment (FDI) or aid etc. In this study we make use of a comprehensive measure of globalization developed by Dreher (2006), which measures globalization along three important dimensions viz., economic, political, and social fields to assess the pros and cons of globalization. Our panel data results with a systems based GMM (SGMM) method show a small but significant positive association between globalization and economic growth for a panel of 21 low income African countries for the period 1970 – 2005.

• Item Type: MPRA Paper
• Language: English
• Keywords: : Globalization, Economic growth, Solow model, Africa
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General

References

Arellano M. & O. Bover (1995): Another Look at the Instrumental Variables Estimation of Error-Component Models, Journal of Econometrics, 68, 29-51.

Arellano, M. & S. Bond (1991): Some Test of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment equations, Review of Economic Studies 58, 277-297.

Barro, R. and Sala-i-Martin, X. (1995): Economic Growth (New York: McGraw Hill).

Baldwin, R. E. (2003): Openness and Growth: What's the Empirical Relationship? NBER, Working Paper 9578. Cambridge MA

Blinder, A. (2006): Off shoring: The Next Industrial Revolution? Foreign Affairs, March/April 2006.

Blundell, R. & S. Bond (1998): Initial Conditions and Moment Restrictions in Dynamic Panel Data Models, Journal of Econometrics, 87, 115-143.

Ben-David, D. (1993): Equalizing exchange: trade liberalization and income convergence, Quarterly Journal of Economics, 108(3), 653-679.

Dreher, A. (2006): Does Globalization Affect Growth? Evidence from a new Index of Globalization, Applied Economics, 38(10), 1091-1110.

Dollar, D. (1992): Outward-oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985, Economic Development and Cultural Change, 40(3), 523-544.

Dollar, D., and Kraay, A. (2004): Trade, growth and poverty, Economic Journal, 114(493), F22–F49.

Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., (2005): Growth Econometrics, Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, 1(1), chapter 8, 555-677.

Edwards, S. (1998): Openness, Productivity and Growth: What Do We Really Know? Economic Journal, 108(447), 383-98.

Frankel, J., and Romer, D. (1999): Does trade cause growth? American Economic Review, 89(3), 379-399.

Greiner, A., Semler, W. and Gong, G. (2004): The Forces of Economic Growth: A Time Series Perspective, Princeton, NJ: Princeton University Press.

Greenaway, D., Morgan, W. and Wright, P. (1998): Trade reform, adjustment and growth: What does the evidence tell us, Economic Journal, 108(450), 1547–1561.

Krugman, P. (2007): Trade and Inequality, Revisited, available online at http://www.voxeu.org/index.php?q=node/261

Quinn, D. (1997): The Correlates of Change in International Financial Regulation, American Political Science Review, 91(3), 531-51.

Pritchett, L. (1996): Measuring outward orientation in LDC’s: can it be done? Journal of Development Economics, 49(2), 307-335.

Rodríguez, F. and Rodrik, D. (2000): Trade policy and economic growth: a skeptic´s guide to the cross-national evidence, in Ben Bernanke & Kenneth Rogoff (eds.) NBER Macroeconomics Annual 2000, pp. 261– 324. Cambridge, Mass.: MIT Press.

Rodrik, D. (1998): Who Needs Capital-Account Convertibility? in “Should the IMF Pursue Capital-Account Convertibility”, Essays in International Finance, 207, Princeton University.

Romer, P. (1994): New goods, old theory, and the welfare costs of trade restrictions, Journal of Development Economics, 43(1), 5-38.

Rao, B. B., Tamazian, A. and Vadlamannati, K. C. (2008): Growth Effects of a Comprehensive measure of Globalization with Country Specific Time Series Data, forthcoming, Applied Economics.

Solow, R. (1956): A contribution to the theory of economic growth, Quarterly Journal of Economics, 70(1), 65-94.

Sachs, J.D. and Warner, A. M. (1995): Economic Reform and the Process of Global Integration, Brookings Papers on Economic Activity, 1-118.

Summers, L. (2006): Financial Times, October 29.

Vamvakidis, A. (1998): Regional Integration and Economic Growth, World Bank Economic Review, 12(2), 251–70.

Warner, A., (2002): Once More into the Breach: Economic Growth and Global Integration unpublished; Cambridge, Massachusetts: Harvard University.

Witold J. Henisz & Bennet A. Zelner (2008): Measures of Political Risk – Political Constraints, http://www-management.wharton.upenn.edu/henisz/_vti_bin/shtml.dll/POLCON/ContactInfo.html