Three decades of globalisation.pdf
Summary
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1 |
INTRODUCTION
This paper refers to globalisation as the gradual integration of economies driven by
new technologies, new economic relationships, and national and international
policies. Some low-income countries have not been integrated, while some highincome countries have been left out.
This paper examines the evolution of exports and net FDI inflows from 1985 to 2015
for 160 countries, and uses regression analysis to shed more light on why some
countries have been drivers of globalisation, while others have been marginalised.
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2 | BRIEF REVIEW OF THE LITERATURE
Though trade has been considered an engine of growth since at least Adam Smith,
some countries may not benefit from international trade.
There is a long literature related to unequal economic relations between developing
and industrialised countries. In the 1970s, the United Nations General Assembly
adopted a resolution declaring the establishment of a New International Economic
Order.
The European Community's trade policies towards the African, Caribbean and
Pacific (ACP) countries have been marginalised due to the economic stagnation of
many ACP countries, specific barriers inhibiting ACP export performance, and the
impact of oil price increases.
In 1994, sub-Saharan Africa was more marginalised in world trade, investment and
output than at any time in the previous 50 years. The main reason for this
marginalisation was political and policy uncertainty, followed by fears of policy
reversal, fear of expropriation and risk of breach of contract.
Most literature from the early 2000s provides a more nuanced and sophisticated
explanation for marginalisation, focusing on Africa, and arguing that the history and
geography of Africa constitute impediments to economic development.
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Gunter and van der Hoeven (2004) examined the evolution of world output, exports
and investment from 1985 to 2002 and showed that the low- and middle-income
countries (excluding India) lost at least one-quarter of their already low shares, while
China and India were clear winners.
Bora, Bout, and Roy (2007) concluded that Africa's marginalisation in world trade
was due to supply-side bottlenecks and costs, administrative constraints and poor
institutions. More recent literature has stressed the close nexus between
international trade and international investment flows.
After the recent Great Recession, world exports-to-GDP ratios recovered shortlivedly. The subsequent slowdown in export growth relative to GDP growth has been
recognised first by Davies (2013) and Krugman (2013), but has been disputed in
previous studies.
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Stiglitz (2002) links globalisation policies to market reforms, criticising that reforms
were implemented too fast, in the wrong sequence, and often using inadequate or
wrong economic analysis. Edwards (2009) uses probit analysis to investigate the
interaction between trade and financial openness and the probability of external
crises.
3.1 |
Evolution of PPP-adjusted GDP per capita
The World Bank (2018) has data for 160 countries and territories from 1990 to 2015,
which shows that world average GDP per capita has nearly doubled from $8,144 to
$14,729, but progress has been uneven across countries and territories.
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The ten countries with highest average GDP per capita growth rates had GDP per
capita levels that tripled between 1990 and 2015. China's GDP per capita was nearly
nine times greater than in 1990.
Table 1 shows that China and India experienced the highest annual GDP per capita
growth rates, while the world's average annual GDP per capita growth rate was
2.4%.
Figure 1 shows the evolution of GDP per capita in constant international dollars from
1990 to 2015, with China and India showing continuous improvement.
3.2 |
Evolution of GDP in current US$
Data for trade and capital flows are only available in current US dollars, so this subsection provides some background on the evolution of GDP over the last three
decades (1985 - 2015) for the 141 countries such data are available. However, there
are considerable differences across countries and territories.
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Table 2 shows that the biggest losers among the four country groups from 1985 to
2015 are the HICs, followed by the LICs. China and India continue to be clear
winners, in addition to the MICs.
World exports of goods and services increased from US$2.01 billion in 1985 to
US$18.34 billion in 2015, an increase of 913%. The 10 countries with the lowest
increase experienced a very sharp decline in their share of world exports from 1985 89 to 2011 - 15, ranging between 66% and 86%.
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The bottom section of Table 3 shows the information for our four country groups.
China and India's share in world exports increased from 1.93% in 1985 to 15.53% in
2015, while the MICs excluding China and India saw a reduction in world exports
from 1985 to 2002.
4.1.2 |
Uneven evolution in exports-to-GDP ratios
The share of world exports to world GDP has increased by exactly 10 percentage
points from 17.0% in 1985 to 27.0% in 2015.
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Mozambique's exports-to-GDP ratio increased from 4.7% in 1985-89 to 32.2% in
2011-15, while Laos's increased from 6.0% to 37.9%.
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Among 118 countries, 27 experienced an increase in their exports-to-GDP ratios
above the increase in world exports to world GDP and 52 below, while 39
experienced a decline in their exports-to-GDP ratios. These 39 countries can be
considered the most marginalised countries in terms of world exports.
China and India have been the biggest winners in terms of increasing their exportsto-GDP ratio during the last three decades, while the group of MICs has been the
biggest losers in terms of increasing their exports-to-GDP ratio.
The evolution of the exports-to-GDP ratios for our four country groups shows that
China's and India's exports-to-GDP ratio experienced a sharp decline from 2006 to
2009, and that trade globalisation has been put on hold since 2008.
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4.1.3 | Correlation between changes in shares of world exports
and changes in exports-to-GDP ratios
The MICs increased their share in world exports over the last three decades, while
the HICs experienced a decline. However, the MICs did much worse than the HICs
in terms of increasing their exports-to-GDP ratios.
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4.2 |
Unequal evolution of foreign direct investment (FDI) flows
In 1985, FDI inflows into LICs were 0.19%, but in 2015, FDI inflows into LICs
reached US$1.8 trillion, and there has been a massive increase in bilateral
investment treaties (BITs) during the last three decades.
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4.2.1 |
Uneven evolution in the shares in world FDI inflows
The biggest winners in FDI inflows were China and India, with a combined share of
15.98%. The share of other MICs decreased from 17.38% to 15.68%, and LICs
increased from 0.19% to 0.67%.
Angola had the worst experience, Papua New Guinea had the best experience, and
Macau had the worst experience. Bangladesh's average annual FDI inflows
increased from US$0.2 million during 1985 - 89 to US$2.27 billion during 2011 - 15.
China and India are the clear winners in terms of world FDI inflows, increasing their
share from 3.2% in 1985 to 16.0% in 2015. However, the LICs' share of world FDI
inflows is still less than 1% in 2015.
4.2.2 |
Uneven evolution in FDI inflows-to-GDP ratios
Five MICs and five HICs experienced significant declines in their net FDI inflows-toGDP ratios.
There is no income per capita association among the ten countries that experienced
the highest increase in their FDI-to-GDP ratios. The LICs experienced the largest
percentage increase in the FDI-to-GDP ratio, followed by China and India.
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4.2.3 | Correlation between changes in shares of world FDI and
changes in FDI-to-GDP ratios
The correlation coefficient between changes in shares of world FDI and changes in
FDI-to-GDP ratios is 0.95, with Nigeria ranking the 27th worst country in terms of
changes to its share of world FDI inflows.
4.3 |
Correlation between trade and capital flows
The correlation between changes in world export shares and changes in export-toGDP ratio is relatively high, as is the correlation between changes in world FDI
shares and changes in FDI-to-GDP ratio.
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5.1 |
Determinants
This section examines the robustness of some broadly accepted determinants of
export performance using annual data from 1980 to 2015 for at least 100 countries.
The determinants examined are education, investment in infrastructure,
macroeconomic instability, average adult fertility rate and share of net FDI inflows to
GDP.
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We average five-year data and lag all exogenous variables by five years to reduce
concerns about endogeneity. We also control for OPEC membership and subSaharan African country.
5.2 | Defining episodes of significant marginalisation in terms of
world trade
We use probit regressions to determine whether a country's share in world exports
has experienced significant marginalisation or significant elevation.
5.3 |
Modelling the probability of marginalisation
We model the probability of marginalisation using a probit specification, as many
sources of marginalisation are excluded from our analysis due to data limitations.
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The normal distribution function, Xit-5, and parameters to be estimated are used to
calculate the indicator value for country i at time t.
5.4 |
Results
Table 7 shows that education and macroeconomic instability are the two most robust
determinants for experiencing marginalisation in terms of world export shares.
However, some other variables, especially infrastructure, are statistically significant if
lowering the significance level from 95% to 90%.
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5.5 |
Robustness checks
We run similar regression specifications using three alternative regression methods
and confirm that education and macroeconomic instability are the most robust
determinants for differences in world export shares. We then determine outliers in
terms of elevated countries and demoted countries.
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6 |
CONCLUSION
Despite a growth in overall trade integration, many countries are still marginalised in
terms of income, trade and capital flows. Though there are still many LICs that
continue to be marginalised, there are now many countries from each income group
that have experienced marginalisation.
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Education and macroeconomic instability are the two most robust determinants for a
country's share in world exports, with or without controlling for GDP growth.
However, not all developing countries have been able to take up these new
possibilities.
Future research can examine the importance of determinants of marginalisation for
different income groups, as well as the role of institutions and political stability.