THE EFFECTS OF GLOBALIZATION ON GROWTH IN BRICS ECONOMIES
The impact of globalization on economic growth has not yet been fully explored. This influence cannot be theoretically defined as strictly positive or strictly negative. Empirical studies show that different countries receive different benefits from globalization. Also, the dimensions and sub dimensions of globalization often vary in the intensity of their impact on countries or even vary between positive and negative effects. Due to their specificity, the impact of globalization on developing countries is of particular interest. Five of those countries, the so-called BRICS countries are analyzed in this paper. This paper finds positive and statistically significant impact of globalization on economic growth in BRICS countries from 1993 to 2016
Keywords: BRICS countries, Globalization, Growth
This paper explores the impact of globalization on economic growth in BRICS economies. These countries are of particular importance as they represent an important part of the world (and in particular of the emerging economies) in terms of population and the size of the market. This paper contributes to the empirical literature on the effects of globalization. Both the theoretical and empirical literature seems to provide mixed evidence on the effects of globalization on growth. These effects are often found to depend on the sample of economies or time periods being investigated. The current paper applies modern econometric techniques (panel data analysis) to investigate empirically the effects of globalization on economic growth in the group of BRICS economies in the period from 1993 to 2016. The paper is also valuable as it applies the new version of the KOF index of globalization (Gygli et al., 2019) which has been shown to exert a number of advantages as compared to previous indicators of globalization. This particular advantage allows us not only to estimate the impact of the general KOF index of globalization or its economic subcomponent (as usually applied in the literature), but also to differentiate between the trade and financial globalization. Our findings seem to suggest that globalization has a positive impact on economic growth in BRICS economies. The paper is structured as follows. A brief literature review is presented in Section 2, together with measurement of globalization. Section 3 explains the research methodology applied and reports the main findings. Section 4 presents the main concluding remarks.
- 2. A BRIEF REVIEW OF THE RELATED LITERATURE AND MEASUREMENT OF GLOBALIZATION
2.1. Literature review
Globalization and its consequences have been hotly debated issues in economic literature. As globalization is a very complex process many attempts to define it are present. The one adopted in this research builds on Gygli et al. (2019) which relates back to Dreher (2006) observingOn the emotional side the term has come to represent all the downsides of large corporations being able to affect the health of small communities by closing factories, shifting investment, managing markets. It’s the powerful against the powerless.
But globalization can also be seen through Buckminster Fuller’s perspective of the global village. And it can be frightening because the very complexity of its organization appears to remove it from street-level influence. In marketing – it’s labels like Coca-Cola, Nestle and Nike. In international finance it is the price and currency movements as in the price of oil or of cocoa. In communication it is CNN – but it is also the anarchic web/internet: it is also TradeMe. Globalization can be both a threat and an opportunity.
So what matters then is not the existence of the process itself, but – like the tide – how it can be managed. And who benefits from which parts of it.
In general I’d argue that as New Zealanders we are doing pretty well out of globalization at the moment…. Although we do suffer from being price takers and very small! We have a broad network of trading and other relationships which stretch from one end of the globe to the other; we have an open and competitive national economy which produces products and services that are able to compete in international markets; we are slowly developing price making export services to balance our price taking primary exports; we have low unemployment; and we have good education, health and other social services. We also have a reputation for honesty and a practical approach, which stands us in good stead in negotiations with other countries and geopolitical entities, both much larger and much smaller than ourselves. And this is reflected in the important roles we are invited to play in both the global arena – for example the WTO, where a New Zealander heads up the agricultural negotiating committee – and regionally, where our Pacific neighbours frequently comment on how they value our partnership approach to negotiations in the Pacific Forum and other regional arena.
However, the world’s wealth and resources – including trading opportunities – are, sadly, not distributed as equitably as those of us committed to reducing poverty and increasing democracy and social justice would like. This isn’t the fact of globalization’s fault, but it does help lead us to the crux of the question. How can we make globalization, the global village, the shrinking world work better for the poor?
Before we go there, let’s remind ourselves what poverty and inequity in this increasingly globalized world of ours is all about. The Millennium Development Goals – and we must not forget that these are also an outcome of globalization – ngos and governments working together provide a good starting point. They help us to define what we mean by poverty and provide a set of internationally agreed targets for the steps we have agreed on to address it.
Let’s take three of the Millennium Development Goal indicators, income per capita (adjusted for purchasing power parity so the amounts can be compared); infant mortality – the number of children per thousand live births who will die before their first birthday); and finally maternal mortality – the number of mothers who will die as a result of giving birth. And then let’s look at how we, and a range of other countries, some from our region and some from further afield, stack up.
First up, income per capita. We in New Zealand have an average income per capita of around $US 22,500. This may be some way behind Norway, but it is nearly four times higher than Fiji; over eight times higher than Papua New Guinea; and some 30 to 40 times higher than the likes of Tanzania and Sierra Leone.
As you would expect, such a general measure as income per capita carries through into the health and other social statistics of our partners in this increasingly globalized world. And here we really are talking about the true face of poverty – of children and their mothers dying unnecessarily and to a large extent simply because of their poverty.
Here in New Zealand the latest UNDP Human Development Report reports that our infant and maternal mortality rates are 5 per 1,000 live births and 7 per 100,000 live births respectively. And each one of these deaths is a personal, family and societal tragedy. So what are we to make of the statistics for Fiji and Papua New Guinea, where the chances of an infant dying are three and 14 times higher, or of a mother dying are over 10 and over 40 times higher than here in New Zealand?
And this is just the tip of the poverty and inequality iceberg. If your family lived in Tanzania, your new born child would be 20 times more likely to die before their first birthday, and your wife or daughter well over 200 times more likely to die in childbirth, than here in New Zealand.
And of course these national averages themselves conceal the next bit of the inequality iceberg: the income differences and different life expectations that exist between the rich and the poor within different nations. For example, in a country like Niger, under 5 per cent of births of those in the poorest 20 per cent of the population are attended by a skilled health professional. And as you would expect these figures are reflected in the infant mortality rates, which are some 50 per cent higher for the children in the lowest 20 per cent than those in the richest 20 per cent.
The economic and social challenges for us to address are clear and real enough. It is these kinds of poverty indicators we should be focusing on when considering how we could better influence and manage the globalization process.
So what have we done and what more can we do, as New Zealanders and as part of a wider international effort?
Signing up to the Millennium Declaration and the Millennium Development Goals is one thing. Ensuring that we all make progress towards these principles is another.
There is a tendency to point to where the MDGs are unlikely to be met. And the spectacle of generations hundreds of millions of people in Africa and Asia continuing to face levels of poverty that we would find completely unacceptable in New Zealand is a very real threat.
However, global experience shows that, where the conditions are right, progress can be made. Infant and maternal mortality rates and the other poverty indicators can and have been reduced. In New Zealand infant mortality rates are less than a third of what they were in 1970. And, although still high, they have also been reduced substantially in Fiji and Papua New Guinea. More recently hundreds of millions of people have been able to escape from absolute poverty in China and other parts of South and South-East Asia. So progress clearly is possible.
Development assistance is one part of the equation, and we are witnessing a reawakening of the international commitments made in the 1970s, at the time of the Millennium Declaration and again at Monterrey in 2002, to achieve the target of 0.7% of Gross National Income being spent on official development assistance. The OECD’s Development Assistance Committee estimates that the average country effort will rise from 0.42% in 2004 to about 0.57% by 2010.
New Zealand is committed to being a good international citizen and doing our bit to help increase the amount of aid being made available to support international poverty reduction efforts. This year we announced a 23 per cent increase in the amount of official development assistance we will provide. This will take us to around 0.27 or 0.28. I want us to do even more, and you may have noticed Labor’s commitment in its Foreign Affairs policy to achieve .35 per cent of GNI for ODA by 2010. But I need the strong support of New Zealand civil society – to get us even closer to the 0.7 per cent target.
Of course its not just how much development assistance that is provided that matters. It’s how well this is used. New Zealand is working with an international coalition of developing and developed countries and other international partners to ensure that there is a step change in aid effectiveness. This involves ensuring that our collective effort gets behind developing country-led initiatives to reduce poverty; those which use and help reinforce developing country management and administration systems, rather than duplicating projects and programmers that have little developing country partner ownership.
However, addressing the global inequality iceberg is going to take a good deal more than increased aid. The international trade agenda still needs to be addressed: developing countries must be given an opportunity to trade their way out of poverty. The income flows that would follow a development friendly outcome to the current Doha development round of trade negotiations have the potential to dwarf aid transfers. The logic of richer countries opening up their economies to the agricultural products of developing countries is over-powering.
Why should the cotton producing countries of West Africa be expected to bear the costs in terms of lower international market prices of US subsidies to US producers should producers worldwide have to continue to bear the consequences of EU agricultural subsidies and protectionism? These discriminatory policies and trading practices impact on some of the poorest countries of the world and their prospects for reducing poverty. There have been strong signals from developing countries that the Doha round will not succeed unless their concerns are addressed.
Ensuring the poor have the opportunity to participate and benefit from globalization lies at the root of the challenge in helping to manage the social and economic impacts of the process. There is plenty of evidence now that – rather unsurprisingly – economic growth in sectors on which the poor depend for their livelihoods is more effective in reducing poverty than growth in other more narrow areas of economic activity. Hence the emphasis on agriculture in the trade negotiations, because this remains the sector on which most of the world’s poor depend.
However, the opportunity to participate goes deeper than this. Poor people need to be able to, and feel, empowered to participate. Access to adequate health and education services, and the ability to exercise democratic rights to support such entitlements, should all be viewed as part of an indivisible package of human rights. And, in this context, special attention must continue to be given to gender equity issues. It is women and female-headed households who make up a disproportionate number of the world’s poor. It is women who are frequently forced to bear a disproportionate share of the costs of economic re-adjustment; and it is women who continue to be under-represented in the world’s governments and parliaments.
In addition, growth must not be at the expense of the opportunities of future generations to participate. So, within the overall context of our commitment to the global poverty reduction effort, New Zealand will continue to place a strong emphasis on environmental sustainability. As recent events in the United States have demonstrated, when environmental disaster strikes it’s usually the poor, who start off with the least, who actually end up being the worst affected.
Reducing the debt overhang of poor, debt distressed, developing countries will be another step to enabling participation. The recent G8 proposal to fund debt forgiveness for the so-called Heavily Indebted Poor Countries (the “HIPCs”) is an historic move in the right direction. But this is likely to leave some anomalies. If it’s applied only to the HIPCs we could end up with some poorer countries being left with greater debts than richer ones. So New Zealand will continue to press for the debt relief proposal to be extended to cover other poor debt-distressed countries as well. We are ready to play our part in funding what we hope will be a just and fair outcome to the negotiations going on in Washington later this week. [IDA Deputies is scheduled for 24/9/05]
Translating the possible gains from increased aid, increased trade and reduced debt – as well as managing any of the potentially negative impacts of globalization – is going to be critically dependent on governance at all levels.
Internationally New Zealand will give our full support to the efforts to reform the UN agreed at the High Level Plenary Session of the General Assembly early this month. I know there have been criticisms, some strident, and while the outcome may not have covered everything we would have liked, it is still a historic outcome, and we will do all we can to support it. We now have an outcome that is a culmination of five years’ efforts in development and other sectors, delivering on the Millennium Declaration and later international conferences. We have explicit recognition that development, security and human rights are crucially interrelated and interdependent – and that failure in one will constrain success in others. We have endorsement of a new Peacebuilding Commission and Human Rights Council – although difficult negotiations will now follow to finish the designs of these two new organs – negotiations very likely to be no less difficult than the closing weeks and days of the Summit process. And finally we have reforms of the UN Secretariat and management, which should improve effectiveness, strengthen internal oversight, review all mandates over five years old. At various points in the negotiation we thought that some, a few, most, or all of these gains might be lost. They haven’t, and we’ve got work to do.
Nationally – with aid levels rising, debt being reduced and the prospect of expanded trading opportunities – the onus increasingly will be on developing country governments to ensure that the increased resources they have available are used effectively to benefit the poor.
And domestically, here in New Zealand, we plan to have a very close look at the overall coherence of our own policies. In other words whether our good intentions in increasing ODA flows are being supported or potentially compromised by the effects of other New Zealand policies that impact on our developing country partners.
Globalization is here to stay. The challenge is how to manage it so that we can offer hope of a better life and secure the rights of the poor. Our own future growth and security and employment opportunities will depend on this. But, equally importantly, we have a moral obligation to ensure it.
As the latest Human Development Report puts it, 2005 marks a crossroads.
We can either seize the moment or deliver on the promise of poverty reduction and the Millennium Development Goals, or we continue with business as usual and have to explain to our children – and the children of the poor worldwide – why we let this moment pass.