Globalization and Africa: implications for human development

Simplice A, Asongu (2012): Globalization and Africa: implications for human development.

Abstract

Purpose – The purpose of this paper is to assess the effects of trade and financial globalization on human development in 52 African countries using updated data(1996-2010) and a new indicator of human development(adjusted for inequality).

Design/methodology/approach – The estimation technique used is a Two-Stage-Least Squares Instrumental Variable methodology. Instruments include: income-levels, legal-origins and religious-dominations. The first-step consists of justifying the choice of the estimation technique with a Hausman-test for endogeneity. In the second-step, we verify that the instrumental variables are exogenous to the endogenous components of explaining variables(globalization dynamic channels) conditional on other covariates(control variables). In the third-step, the strength and validity of the instruments are assessed with the Cragg-Donald and Sargan overidentifying restrictions tests respectively. Robustness checks are ensured by: (1) use of alternative globalization indicators; (2) endogeneity based estimation ; and (3) adoption of two interchangeable sets of instruments.

Findings – Findings broadly indicate that while trade globalization improves human development(consistent with the neoliberal theory), financial globalization has the opposite effect(in line with the hegemony thesis).

Social implications – Capital accounts should be opened in tandem with financial and institutional development. The investment atmosphere needs improvement to curtail capital flight(about 39%). Other policy implications include: adoption of openness options in a selective and gradual manner, development of some industrial backbone for an import-substitution or export-led industry, emphasis on regional trade and building capacity, development of the agricultural sector with continuous government assistance, building of rural infrastructure, increasing adult literacy rate and developing human resources, fighting corruption and mitigating wastages in government expenditure.

Originality/value – These findings are based on very recent data. Usage of the inequality adjusted human development index first published in 2010, corrects past works of the bulk of criticisms inherent in the first index.

• Item Type: MPRA Paper
• Language: English
• Keywords: Globalization; Human development; Africa
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F1 - Trade > F10 - General; I - Health, Education, and Welfare > I1 - Health > I10 - General

References

Asongu, S. A., (2010), “Bank efficiency and openness in Africa: do income levels matter?”, MPRA Paper No. 27025.

Asongu, S. A., (2011a), “Finance and inequality: exploring pro-poor investment channels in Africa”, MPRA Paper No. 34994.

Asongu, S. A., (2011b). “Law, finance, economic growth and welfare: why does legal origin matter?”, MPRA Paper No. 33868.

Asongu, S. A.,(2011c). “Law, finance and investment: does legal origin matter?”, MPRA Paper No. 34698.

Asongu, S. A., (2011d). “Law and investment in Africa”, MPRA Paper No.34700.

Asongu, S. A.,(2011e). “Law and finance in Africa”, MPRA Paper No. 34080.

Asongu, S.A., (2011f). “Why do French civil-law countries have higher levels of financial efficiency?”, MPRA Paper No.33950.

Asongu, S. A., (2011g). “Financial determinants of human development in developing countries”, MPRA Paper No. 33949.

Asongu, S. A.,(2011h). “Globalization, financial crisis and contagion : time-dynamic evidence of financial markets of developing countries”, MPRA Paper No. 30668.

Basu, P. & Guariglia, A.,(2007). “Foreign Direct Investment, inequality, and growth”. Journal of Macroeconomics, 29, pp.824–839.

Beck, T., Demirgüç-Kunt, A., & Levine, R.,(2003). “Law and finance: why does legal origin matter?”, Journal of Comparative Economics, 31, pp. 653-675.

Bhagwati, J., (1990), “Departures from multilateralism: regionalism and aggressive unilateralism”, The Economic Journal, 100, pp.1304-1317.

Collier, P., Hoeffler, A., & Pattillo, C.,(2001), “Flight Capital as a Portfolio Choice”, The World Bank Economic Review, 15, pp. 55-80.

Cornia, G.A.C.,(2001), “Globalization and health: results and options”, Bulletin of the World Health Organization, ISSN 0042-9686.

Dornbusch, R. (1992), “The Case for Trade Liberalization in the Developing countries”, Journal of Economic Perspectives, 6(1), pp.69-85.

Easterly, W.,(2005), “Can foreign aid save Africa”, Saint John’s University.

Firebaugh, G.,(2004), “Accounting for the recent decline in global income inequality”, American Journal of Sociology, 110, pp.283-312.

Greenwood, J., & Jovanovic, B.,(1990). “Financial development, growth and the distribution of income”, Journal of Political Economy, 98(5), pp.1076-1107.

Grennes, T., (2003), ‘Creative destruction and globalization’, Cato Journal, 22, pp.543-558.

Kai, H., & Hamori, S., (2009). “Globalization, financial depth and inequality in Sub-Saharan Africa”, Economics Bulletin, 29 (3), pp. 2025-2037.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W., (1997). “Legal Determinants of External Finance”, Journal of Finance, 52, pp. 1131-1150.

Lai, W.H., (2003), “The Impact of Globalisation on Human Resource Development in Malaysia”, Academy of Human Resource Development International, USA(AHRD) and National Institute of Development Administration(NIDA).

Pan-Long, T., (1995). “Foreign Direct Investment and Income Inequality: Further evidence”, World Development, 23(3), pp. 469-483.

Petras, J., & Veltmeyer, H., (2001), Globalization unmasked: imperialism in the 21st Century. Zed(edt), London.

Rabbanee, F.K., Haque, M.M., & Hasan, F.,(2010), “Globalisation and Human Development-Realities and Recommendation for Developing Countries”, Asian Affairs, 30(1), pp.32-49.

Rodrik, D., Subramanian, A., & Trebbi, F., (2004), “Institution Rule: the primacy of institutions over geography and integration in economic development”, Journal of Economic Growth, 9, pp.131-165.

Scholte(2000), Globalisation: a Critical Introduction, St. Martin’s Press Inc. New York.

Sirgy, M.J., Lee, D.J., Miller, C., & Littlefield, J.E.,(2004), “The impact of globalization on a country’s quality of life: toward an integrated model”, Social Indictors Research, 68, pp.251-298.

Smart, B., (2003), Economy, Culture and Society: A Sociological Critique of Neo-liberalism, Open Univesity Press, Buckingham.

Tsai, M.,(2006), “Does Globalisation Affect Human Well-being?”, Department of Sociology, National Taipei University, Taiwan.

Weibrot, M., & Baker, D., (2002), “The Relative Impact of Trade Liberalization on Developing Countries”, Center for Economic and Policy Research Working Paper.

Wood, A., (2001), “North-South Trade and Female Labor in Manufacturing: An asymmetry”, Journal of Development Studies, 27(2), pp.168-189.