research paper on benefits of globalization

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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
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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

research paper on benefits of globalization

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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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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Globalization

Globalization refers to the economic, political, social, cultural, and technological exchanges among people, nations, and regions. The ever-increasing integration is extensive, covering trade and investments, values and ideas, inventions and lifestyles, and governance policies.

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Topic Home | Social Issues | Literature | Lifelong Learning & DIY | World History

Industrial revolution overview.

“Industrial Revolution." Gale In Context: World History , Gale, 2022.

Globalization refers to the economic, political, social, cultural, and technological exchanges that take place among people, nations, and regions. The world is becoming more and more integrated in economics, values and ideas, inventions, lifestyles, and government policies.

Globalization started with early humans migrating from Africa to other parts of the world. Over the next millennia, ancient peoples established links and traded goods, customs, and knowledge. The discovery and colonization of new lands beginning in the 15th century contributed greatly to globalization by facilitating exchanges between the Old World and the New World.

The process gained momentum in the years after World War II with freer trade and international cooperation. The end of the Cold War and the introduction of new communication and transportation technologies in the 1990s provided a further boost. It culminated with the rise of the internet in the 21st century, which accelerated the phenomenon exponentially and extended globalization's reach to previously isolated communities.

Globalization refers to the economic, political, social, cultural, and technological exchanges among peoples, nations, and regions, which create a more interconnected and interdependent world. In a modern context, it is most often associated with business enterprises.
From ancient ties among early civilizations, the exchanges of goods, customs, and knowledge evolved through connections that were often solidified through trade relations and the sharing of ideas. This continued through the colonization of new lands beginning in the fifteenth century.
Beginning in the mid-twentieth century, globalization advanced with the promotion of free trade and international cooperation, the end of the Cold War, the introduction of new communication and transportation technologies, and the rise of the internet.

Early Globalization

Globalization began in ancient times, when people and communities first started exchanging goods and sharing knowledge and cultural practices. During the Hellenistic Age (323 to 100 b.c.e.), the Greeks established broad trade and commercial connections. Greek culture and philosophical ideas spread into Europe, West Asia, and North Africa.

Around 100 b.c.e., a network of trade routes called the Silk Road developed, linking the Far East with the Middle East and Europe. Over the next two millennia, goods, cultures, religions, technologies, and ideas were exchanged between the East and the West through the Silk Road.

In the Middle Ages, the Islamic empire opened trade routes along the Mediterranean and Indian Oceans. These later reached as far east as Indonesia and as far west as Muslim Spain. These and the Silk Road linked much of the known world at that time and contributed to the development of globalization.

Age of Discovery

The Age of Discovery which began in the fifteenth century, marked a crucial point in the growth of globalization. The discovery of new lands and the circumnavigation of the world were hugely significant developments. New scientific knowledge and inventions helped the Portuguese and Spanish found and conquer new lands. Later, the Dutch and English also explored and conquered territory.

The newly formed links between the East and the West facilitated both positive and negative exchanges between the Old World (mainly Europe) and the New World (primarily the Americas). Effects of European influnce in the Americas were later named the Columbian Exchange, after explorer Christopher Columbus (1451-1506). This involved the exchanging of plants, animals, inventions, customs, business ideas, and even people. New crops and animals were introduced in different regions around the world and new settlers faced distinct challenges while pursuing liberty and wealth. Indigenous populations, however, were decimated by epidemics, environmental destruction, and brutality. In light of the displacement and deaths of so many Native residents of the so-called New World, the overall effect of the exchange on the trajectory of human development is seen by many historians as negative.

Imperialism

World trade further increased with the establishment of chartered companies in the 1600s, such as the British East India Company and Dutch East India Company. Western European nations competed for trade routes. These nations often went to war to resolve their economic issues.

From the mid-eighteenth century to the early nineteenth century, the British, Portuguese, Dutch, and Spanish focused on building their empires through land acquisition and business development. Most of Africa and large parts of Asia were under colonial rule by the end of the nineteenth century. Global trade increased as imperial governments took advantage of the labor and material resources in their colonies resulting in negative exchanges in which empires prospered to the detriment of local and Native populations. Innovations like the steam engine and mass production equipment accelerated the pace of industry.

Modern Globalization

World War I (1914-1918) slowed the rate of globalization, as nations closed their borders and focused on what they each could contribute to the war effort. International trade resumed after the war but then collapsed during the Great Depression (1929-1939).

Globalization was reinvigorated after World War II (1939-45). In July of 1944, representatives from forty-four nations gathered in Bretton Woods, New Hampshire, in the United States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. The delegates formed new rules for commercial and financial cooperation in the postwar global economy. This led to the founding of international institutions committed to international growth and collaboration, including the World Bank, the United Nations, and the International Monetary Fund.

Powerful nations made rich by colonialism and imperialism strongly supported the globalization of economies and politics in the mid-twentieth century. Technological advancements in the world of business resulted in innovations in automobiles, airplanes, television, and telephones, all of which contributed to the effort. These and other developments increased the flow of workers around the world and made communication more efficient.

World Trade Organization

A multilateral agreement called the General Agreement on Tariffs and Trade (GATT) was established in 1947 to regulate international commerce. This promoted free trade by reducing tariffs and removing trade restrictions between nations. The world economy became more and more integrated. Most globalization efforts excluded the communist states of eastern Europe until the early 1980s. After the Cold War ended in 1989, however, these countries began to integrate into the global market economy.

In 1995, the GATT was replaced by a new international body called the World Trade Organization (WTO). The WTO provided rules for international trade. It created a structure for creating trade agreements and helped resolve disputes between nations. While the GATT dealt mainly with trade in goods, the WTO also covered services and intellectual property. It encouraged nations to enter into free trade agreements and form regional trade alliances.

The benefits to the global economy also come with a downside of potential negative effects. Because of globalization, an economic crisis in one nation is likely to affect other nations. For example, the financial crisis in the United States in 2008 created a global economic recession.

Critics of free trade have called for nations, business interests, and organizations to adopt fair trade policies. They argue that unregulated free trade can often lead to inequality. Free trade has caused job losses in some countries, as manufacturers move production to where labor costs are least expensive. In some places, free trade has led to environmental problems and the depletion of natural resources.

The fair trade movement promotes equity in production and trade by supporting disadvantaged manufacturers and ensuring a fair minimum price for comparable products. It calls for higher standards for work conditions and environmental sustainability. The goal is improving quality of life for laborers, especially in developing countries. Fair trade products often sell for higher prices. In recent years, the movement has gained more support, and the range of fair trade products has grown to include tea, coffee, sugar, chocolate, bananas, honey, and wine.

Internet Connectivity

The rise of the internet in the twenty-first century has generally provided more opportunities to participate in the global economy around the world. It has allowed for more rapid exchanges of goods, services, cultures, knowledge, technologies, and ideas. Supply chains have increasingly become globally integrated. Often, research, sourcing, production, and distribution are each carried out in different regions of the world for multinational enterprises. Cyberspace, however, is vulnerable to hacking and other attacks. These could disrupt supply chains and endanger both national and global economies. As a result, fighting cybercrime has become important and expensive for companies and governments.

Multinational efforts have also tried to address human rights issues in an increasingly globalized world. The inequality resulting from free trade practices has led to human rights violations, especially in developing nations, which have fewer resources than developed nations and therefore are more dependent on outside assistance.

The world has become more interdependent in the modern era of globalization. One particular example is how much easier it is for pandemics to spread and affect billions of people. In 2020, the COVID-19 pandemic caused by a novel coronavirus challenged the state of globalization. The crisis caused a devastating impact on the world economy, trade (especially with regard to the shipping industry), and healthcare after countries closed their borders and shut down parts of their economies.

Critical Thinking Questions

Why do powerful countries benefit from globalization and want to see it expand?
Do the benefits of globalization outweigh its negative effects? Why or why not?
What are things that could be changed to ensure more fairness around the world with regard to globalization?

Lang, Michael. "Globalization and Its History." The Journal of Modern History . Volume 78, no. 4, December 2006, pp. 899-931.
Liebert, Hugh. "Alexander the Great and the History of Globalization." The Review of Politics . Volume 73, no. 4, Fall 2011, pp. 533-560.
Osterhammel, Jürgen and Niels P. Petersson. Globalization: A Short History . Princeton University Press. 2009.
Vanham, Peter. "A Brief History of Globalization." World Economic Forum. January 17, 2019. Available at https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-into-the-history-of-globalization/.

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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

Introduction

An external file that holds a picture, illustration, etc.
Object name is pone.0087824.g001.jpg

Literature Review

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

An external file that holds a picture, illustration, etc.
Object name is pone.0087824.e006.jpg

Data and Empirical Strategy

Findings and Discussion

Variables	Coefficient	t-statistics	-value
	0.13	1.93	0.054
	0.67	3.85	0.000
	−0.0003	−0.09	0.92
	−0.003	−0.89	0.37
	0.0031	1.67	0.09
	0.03	3.13	0.002
	0.055	3.16	0.002
	−0.032	−0.34	0.73
	33
	0.45
	0.000
	0.601

Variables	Human capital	Financial development
	0. 41(2.88)	0.15 (0.86)
	-	0.001 (6.32)
	0.002 (8.40)	-
	33	33
	0.373	0.93
	0.000	0.000
	0.115	0.387

Variables	Coefficient	t-statistics	-value
	0.88	4.35	0.000
	−0.009	−3.08	0.002
	0.003	2.02	0.043
	0.045	2.55	0.011
	33
	0.35
	0.000
	0.152

Conclusions and Implications

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.

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6 Pros and Cons of Globalization in Business to Consider

Business professional considering the pros and cons of globalization

01 Apr 2021

Throughout history, commerce and business have been limited by certain geographic constraints. In its earliest days, trade happened between neighboring tribes and city-states. As humans domesticated the horse and other animals, the distances they could travel to trade increased. These distances increased further with the development of seafaring capabilities.

Although humans have been using ships for centuries to transport goods, cargo, people, and ideas around the world, it wasn’t until the development of the airplane that the blueprint of a “globalized economy” was laid. This was for a simple reason: You can travel greater distances faster than ever before.

The development of the internet accelerated this process even more, making it easier to communicate and collaborate with others. Today, your international co-worker, business partner, customer, or friend is only a few taps or clicks away.

Globalization has had numerous effects—both positive and negative—on business and society at large. Here’s an overview of the pros and cons of globalization in business.

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What Is Globalization?

Globalization is the increased flow of goods, services, capital, people, and ideas across international boundaries according to the online course Global Business , taught by Harvard Business School Professor Forest Reinhardt.

“We live in an age of globalization,” Reinhardt says in Global Business . “That is, national economies are even more tightly connected with one another than ever before.”

How Globalization Affects Daily Life

Globalization has had a significant impact on various aspects of daily life.

For example, it’s changed the way consumers shop for products and services. Today, 70 percent of Americans shop online. In 2022, there were 268 million digital buyers in the US and by 2025, this number is predicted to reach 285 million.

In addition, the globalized economy has opened up new job markets by making it more feasible to hire overseas workers. This has created a wide range of career opportunities for both job seekers and employers.

The emergence of remote work post-pandemic was also made possible by globalization. According to a survey from WFH Research , only seven percent of paid workdays in the US were remote in 2019. However, this number climbed to 29 percent by January 2024.

Check out the video below to learn more about globalization, and subscribe to our YouTube channel for more explainer content!

Advantages of Globalization

1. economic growth.

It’s widely believed that one of the benefits of globalization is greater economic growth for all parties. There are several reasons why this might be the case, including:

Access to labor: Globalization gives all nations access to a wider labor pool. Developing nations with a shortage of knowledge workers might, for example, “import” labor to kickstart industry. Wealthier nations, on the other hand, might outsource low-skill work to developing nations with a lower cost of living to reduce the cost of goods sold and pass those savings on to the customer.
Access to jobs: This point is directly related to labor. Through globalization, developing nations often gain access to jobs in the form of work that’s been outsourced by wealthier nations. While there are potential pitfalls to this (see “Disproportionate Growth” below), this work can significantly contribute to the local economy.
Access to resources: One of the primary reasons nations trade is to gain access to resources they otherwise wouldn’t have. Without this flow of resources across borders, many modern luxuries would be impossible to manufacture or produce. Smartphones, for example, are dependent on rare earth metals found in limited areas around the world.
The ability for nations to “specialize”: Global and regional cooperation allow nations to heavily lean into their economic strengths, knowing they can trade products for other resources. An example is a tropical nation that specializes in exporting a certain fruit. It’s been shown that when nations specialize in the production of goods or services in which they have an advantage, trade benefits both parties.

4 Ways Globalization Can Increase Economic Growth

2. Increased Global Cooperation

For a globalized economy to exist, nations must be willing to put their differences aside and work together. Therefore, increased globalization has been linked to a reduction—though not an elimination—of conflict.

“Of course, as long as there have been nations, they've been connected with each other through the exchange of lethal force—through war and conquest—and this threat has never gone away,” Reinhardt says in Global Business . “The conventional wisdom has been that the increased intensity of these other flows—goods, services, capital, people, and so on—have reduced the probability that the world's nations will fall back into the catastrophe of war.”

Global Business | Thrive in today's interconnected, global economy | Learn More

3. Increased Cross-Border Investment

According to the course Global Business , globalization has led to an increase in cross-border investment. At the macroeconomic level, this international investment has been shown to enhance welfare on both sides of the equation.

The country that’s the source of the capital benefits because it can often earn a higher return abroad than domestically. The country that receives the inflow of capital benefits because that capital contributes to investment and, therefore, to productivity. Foreign investment also often comes with, or in the form of, technology, know-how, or access to distribution channels that can help the recipient nation.

Disadvantages of Globalization

1. increased competition.

When viewed as a whole, global free trade is beneficial to the entire system. Individual companies, organizations, and workers can be disadvantaged, however, by global competition. This is similar to how these parties might be disadvantaged by domestic competition: The pool has simply widened.

With this in mind, some firms, industries, and citizens may elect governments to pursue protectionist policies designed to buffer domestic firms or workers from foreign competition. Protectionism often takes the form of tariffs, quotas, or non-tariff barriers, such as quality or sanitation requirements that make it more difficult for a competing nation or business to justify doing business in the country. These efforts can often be detrimental to the overall economic performance of both parties.

“Although we live in an age of globalization, we also seem to be living in an age of anti-globalization,” Reinhardt says in Global Business . “Dissatisfaction with the results of freer trade, concern about foreign investment, and polarized views about immigration all seem to be playing important roles in rich-country politics in the United States and Europe. The threats in Western democracy to the post-war globalist consensus have never been stronger.”

2. Disproportionate Growth

Another issue of globalization is that it can introduce disproportionate growth both between and within nations. These effects must be carefully managed economically and morally.

Within countries, globalization often has the effect of increasing immigration. Macroeconomically, immigration increases gross domestic product (GDP), which can be an economic boon to the recipient nation. Immigration may, however, reduce GDP per capita in the short run if immigrants’ income is lower than the average income of those already living in the country.

Additionally, as with competition, immigration can benefit the country as a whole while imposing costs on people who may want their government to restrict immigration to protect them from those costs. These sentiments are often tied to and motivated—at least in part—by racism and xenophobia.

“Meanwhile, outside the rich world, hundreds of millions of people remain mired in poverty,” Reinhardt says in Global Business. “We don't seem to be able to agree about whether this is because of too much globalization or not enough.”

3. Environmental Concerns

Increased globalization has been linked to various environmental challenges, many of which are serious, including:

Deforestation and loss of biodiversity caused by economic specialization and infrastructure development
Greenhouse gas emissions and other forms of pollution caused by increased transportation of goods
The introduction of potentially invasive species into new environments

While such issues are governed by existing or proposed laws and regulations, businesses have made climate change concerns and sustainability a priority by, for example, embracing the tenets of the triple bottom line and the idea of corporate social responsibility .

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Managing the Risks of Globalization

The world is never going to abandon globalization. While it’s true that individual countries and regions put policies and practices in place that limit globalization, such as tariffs, it’s here to stay. The good news is that businesses and professionals willing to prepare for globalization’s challenges by developing strong social impact skills have the potential to benefit immensely.

Whether you’re a business owner, member of executive leadership, or an employee, understanding the impacts of globalization and how to identify its opportunities and risks can help you become more effective in your role and drive value for your organization.

Taking a course like Global Business is one path toward developing international business skills and gaining an understanding of the macroeconomic, political , and social conditions that continue to impact globalization.

Are you interested in breaking into a global market? Sharpen your knowledge of the international business world with Global Business , one of our online business in society courses . If you aren't sure which course is the right fit, download our free course flowchart .

This post was updated on February 26, 2024. It was originally published on April 15, 2021.

About the Author

The impact of economic, social, and political globalization and democracy on life expectancy in low-income countries: are sustainable development goals contradictory?

Published: 18 January 2021
Volume 23 , pages 13508–13525, ( 2021 )

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Arif Eser Guzel ORCID: orcid.org/0000-0001-5072-9527 1 ,
Unal Arslan 1 &
Ali Acaravci 1

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The 17 Sustainable Development Goals announced by the United Nations are important guides for the development processes of developing countries. However, achieving all of these goals is only possible if the goals are consistent with each other. It has been observed in the literature that possible contradictions between these goals are ignored. Therefore, the main purpose of this study is to investigate whether two sustainable development goals (SDGs) of the UN are contradictory or supporting each other in low-income countries. These SDGs are “Good Health and Well-Being” (SDG3) and “Partnerships for the Goals” (SDG17). For this purpose, the role of globalization and democracy in life expectancy is empirically investigated in 16 low-income countries over the period 1970–2017. While globalization has been used as an indicator of the partnership between countries, democracy has been used as an indicator of accountability and cooperation between governments and societies. According to estimations of the continuous-updated fully modified (CUP-FM) and bias-adjusted ordinary least squares (BA-OLS), globalization and its subcomponents such as economic, social, and political globalization affect life expectancy positively. Democracy also increases life expectancy in those countries. The GDP per capita is also used as a control variable. Our results show that a higher level of per capita income is positively associated with higher levels of life expectancy. In conclusion, no contradiction was found between SDG3 and SDG17 in those countries. Achieving a healthier society requires economic, social, and political integration between governments and societies.

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1 Introduction

The main problem of economics is to increase economic development and social welfare. Increasing the social welfare level is a complex process that depends on economic and non-economic factors. Achieving economic development or increasing the level of welfare depends on achieving and sustaining the main objectives in political, economic, and social areas. Today, development is no longer a process that can be realized through policies implemented by governments alone. It requires cooperation between governments and societies. While cooperation between different countries requires globalization in the economic, social, and political fields, democracy is the way to ensure cooperation between governments and societies.

Health is one of the most important indicators of social welfare. Besides being one of the indicators of development, it is one of the determinants of human capital formation which is necessary for economic development. Individuals living in developed countries live a healthier life compared to those living in less developed countries. While the differences between the levels of development of countries determine the health conditions, at the same time, improvement of public health paves the way for economic development. Healthy people have higher opportunities to earn a higher income than unhealthy people. Individuals with higher incomes can benefit from better nutrition and access to health services. Therefore, economic development and improvement of health conditions represent a two-way process. In this context, the determination of the variables that will enable the achievement of the goal of a healthier society is especially important in explaining the economic differences between developing countries and developed countries. Because of its importance, health-related goals have an important place both among the Millennium Development Goals (MDGs) and the Sustainable Development Goals (SDGs) announced by the United Nations.

The world leaders with the support of international funding organizations announced the Millennium Declaration in September 2000 at the United Nations Headquarters in New York. They committed their nations to a new international partnership to achieve some development targets having with the final deadline of 2015. The Millennium Development Goals (MDGs) consist of 8 goals, 21 targets, and 60 related indicators covering a wide spectrum of development areas such as “End Poverty and Hunger (MDG 1),” “Universal Education (MDG 2),” “Gender Equality (MDG 3),” “Child Health (MDG 4),” “Maternal Health (MDG 5),” “Combat HIV/AIDS (MDG 6),” “Environmental Sustainability (MDG 7),” and “Global Partnership (MDG 8).” As we see, three of the goals are directly associated with the health status of the people. In the deadline of 2015, according to “Health in 2015: From MDGs to SDGs” report of the World Health Organization (WHO), there are improvements in health-related targets such as child health, maternal health, and combat with HIV/AIDS. Globally, HIV, tuberculosis, and malaria targets have been met. Also, the child mortality rate was reduced by 53% and maternal mortality by 43% (WHO 2016 ). On a global view, although health-related problems are largely resolved, the situation is not as good for low-income countries. As shown in Fig. 1 , significant differences exist between developing countries and developed countries in achieving health-related goals.

Source Halisçelik and Soytas (2015)

World Bank Income Groups’ MDGs Index Values in 2015.

According to MDGs, indexes in the context of health status show that the goals desired in terms of health are not attained in low-income countries compared to other income groups. After the deadline of MDGs, the United Nations has announced 17 SDGs, and “Good Health and Well-Being” takes its place as the third goal. Since achieving these goals requires the cooperation of countries and societies, “Partnership for the Goals” is determined as the seventeenth SDG. According to the United Nations ( 2019 ), the main indicators of global partnerships are trade, foreign direct investments, remittances, financial integration technology transfers, data monitoring and accountability, internet usage, and political integration among countries. In our study, while globalization is used as a proxy indicator of global cooperation, democracy is an indicator of cooperation between societies and governments. Democracy also refers to accountability levels of governments.

Globalization can simply be defined as the process of international integration which has economic, social, and political dimensions (Dreher 2006 ). Many countries have adapted to this process and have enjoyed the welfare effects of globalization by implementing necessary economic and institutional transformation. However, some countries still suffer from poor adaption to global markets. According to the KOF Globalization Index published by the Swiss Economic Institute ( 2020 ), low-income countries have the lowest globalization level compared to other income groups. They also suffer from bad health conditions such as low life expectancy, communicable diseases, and high mortality rates according to MDG indexes given above. At this point, the literature is divided into two parts. The first one blames globalization and argues that poverty and as a result of this, low life expectancy derives from the inequality created by globalization itself (Buss 2002 ). The second group mostly focuses on the benefits of free trade, capital mobility, and technology transfers (Rao and Vadlamannati 2011 ). The low-income countries also suffer from low institutional quality in the context of democracy and political rights. According to Freedom House’s list of electoral democracies, the countries without electoral democracy are mostly the low-income countries in the Middle East, North Africa, Sub-Saharan Africa, and Southeast Asia (Freedom House 2019 ).

The main question of our study is to determine whether the problem of low life expectancy in low-income countries is due to the low levels of globalization and weak political institutions in these countries. To answer this question, the role of economic, social, and political globalization and democracy in life expectancy in those countries is empirically investigated. This study provides several contributions to previous literature. First, we provide a new perspective in the context of sustainable development goals. Previous studies mostly focused on how to achieve SDGs, while possible conflicts between the goals were mostly ignored especially in the context of health. Such conflicts between sustainable development goals in the literature have mostly focused on the impact of economic growth and globalization on the sustainable environment (Ulucak and Bilgili 2018 ; Zafar et al. 2019a ). Those studies are mostly addressed the relationship between SDG7, SDG8, SDG13, and SDG17 (Zafar et al. 2019b ). To the best of our knowledge, it is the first study that investigates the relationship between SDG3 and SDG17. It is also important to examine this relationship in low-income countries since they still suffer from low levels of life expectancy, less adaptation to globalization, and poor democratic institutions compared to other income groups. Previous works mostly provide global evidence, while only a few studies focus on less developed countries. Achieving these 17 goals put forward by the United Nations at the same time is possible only if these goals do not conflict with each other. Second, empirical works in previous literature consist of traditional estimation methods called first-generation tests. In the analysis of panel data, the estimators considering cross-sectional dependence are called the second-generation estimators. Cross-sectional dependency simply refers to the situation when the shock that occurs in one country affects other countries as well. The source of this problem encountered in panel data analysis is the economic, financial, and political integration among countries (Menyah et al. 2014 ). The ignorance of cross-sectional dependence results in biased and inconsistent estimates and wrong inferences (De Hoyos and Sarafidis 2006 ; Chudik and Pesaran 2013 ). Low-income countries are mostly African countries where there is a rising trend in terms of integration to global markets and institutions (Beck et al. 2011 ). Using estimation techniques that consider cross-sectional dependence in those countries prevents misleading results. As the literature is divided into two parts about the effects of globalization on human well-being, fresh evidence via robust estimation methods is required in order to provide proper policy implications. To fill this gap, our work provides second-generation estimations.

2 Literature review

To improve the health conditions of a country, the welfare of the poor should be improved as well. Poverty is detrimental to access to health services. Therefore, the positive impact of globalization on health first emerged with its positive effects on economic growth (Labonté et al. 2009 : 10). The effects of globalization on growth were mostly driven by free trade, international specialization, technology transfers, knowledge spillovers, and competitive markets. It also offers broader opportunities for entrepreneurs and paves the way for innovation (Grossman and Helpman 2015 : 101). As expected, poverty rates significantly reduced in the last two decades because of the integration of developing economies to global markets (Harrison 2006 ). When trade liberalization and income increases are considered together, people's access to treatments and medications can be easier and life expectancy may be prolonged. However, we should consider other possibilities in the context of spreading communicable diseases. As Deaton ( 2004 ) mentioned before, access to cheap and easy travel can increase the rate of spread of communicable diseases. Migration is also another fact to take into account. Particularly rising sexual tourism and migrant sex workers increase the spread of sexually transmitted diseases such as HIV/AIDS. But today there are improved treatment methods to solve these problems. Even HIV-infected people can survive with antiretroviral therapy, and it also reduces sexual transmission of the infection (Dollar 2001 ; Cohen et al. 2011 ). Due to the high cost of advanced drugs as in the case of antiretroviral therapy, it should be accepted that people in low-income countries will have trouble accessing the drugs (Buss 2002 ). There are approaches known as the unequal exchange that globalization increases inequality among countries and that developed countries are more profitable from the globalization process (Love, 1980 ). It may also increase domestic income inequality. There are a few studies that came with the conclusion that globalization rises inequality (Dreher and Gaston 2008 ; Ha 2012 ), but Bergh and Nilsson ( 2010 ) suggested a different perspective. Due to extensive R&D investments and scientific activities, developed countries can find new treatment methods and supply advanced drugs. The only way to access that knowledge and these drugs are trade and integration between developed and underdeveloped countries. Globalization can play an important role in improving the health conditions of low-income countries to the extent that it can provide these linkages. One should also notice that wider markets and higher returns are important factors that motivate entrepreneurs. Buss ( 2002 ) claimed that the intellectual property rights of advanced drugs belong to private firms in developed countries, and because of the strong protection of property rights, less developed countries have trouble accessing them. However, rising global human rights became an important step to advance public health issues against economic concerns in the trade of pharmaceutical products.

The human rights approach focuses on how globalization affected disadvantaged people worldwide (Chapman 2009 ). It is an important instrument in the suppression of the inequality created by economic globalization. Because of the pressure on the government about human rights, disadvantaged people are becoming able to meet their basic human needs. The role of political globalization on this point is forcing governments to adopt global institutions. It increases the number of international organizations in which a country is a member. This makes governments more accountable in the global area and forcing them to pay attention to protect human rights. Gelleny and McCoy ( 2001 ) also claimed that integration among countries leads to political stability. Therefore, governments' tendency to violate human rights in order to maintain their power becomes lesser. Moreover, as social dimensions of globalization expand and communication opportunities among people in different countries increase, the possibility of human rights violations being discovered by other people increases (Dreher et al. 2012 ). Governments that know the international sanctions required by these violations have to be more cautious against human rights violations. Social globalization also provides cultural integration among the world’s people, and it changes lifestyles and consumption patterns worldwide. The consequences of this change can have positive and negative effects. First, increased urban population and sedentary lifestyles may enhance prepared food consumption and reduce daily movements which result in rising obesity and diabetes (Hu 2011 ). Second, although rapidly increasing consumption options and diversity are known as welfare indicators, they also can cause stress which is known as an important determinant of many diseases both psychological and physical (Cutler et al. 2006 ). Third, due to knowledge spillovers and communication technology, people can learn about healthy nutrition and protection from communicable diseases. Thus, unhealthy but traditional consumption patterns and lifestyles may change. These days we experience the coronavirus epidemic and we see once again the importance of globalization. Countries are aware of infectious diseases in different parts of the world in a very short time and can take measures to stop the spread of the virus. The changes created by social and political globalization play a major role in this emergence. Social globalization enables people in very remote areas of the world to communicate with each other, while political globalization forces governments to be transparent about infectious diseases.

With economic globalization, increased economic activity may lead to urbanization. One may think about unhealthy conditions of an urban area such as environmental degradation, air and water pollution, higher crime rates, and stress which reduce life expectancy. However, according to Kabir ( 2008 ), people living in an urban area can benefit from improved medical care, easy access to pharmacy, and to the hospitals that use higher technology. They can also get a better education and can enjoy better socioeconomic conditions.

Democracy can be considered as another determinant of life expectancy. In order to solve the health problems of the poor, people should draw the attention of the government. Sen ( 1999 ) claimed that the instrumental role of democracy in solving problems is enabling people to express and support their claims. Thus, the attention of politicians can be attracted to the problems of the poor. Politicians who have never tasted poverty do not have the urge to take action against the problems of the poor at the right time. Another linkage can be established through accountability (Besley and Kudamatsu 2006 ). In democracies, governments have an obligation to account to citizens for what purposes the resources were used. Thus, resources can be allocated to solve important public issues such as quality of life, communicable diseases, and mortality.

Compared to theoretical discussions, previous literature provides a lack of empirical evidence. Barlow and Vissandjee ( 1999 ) examined the determinants of life expectancy with cross-sectional data available in 1990 for 77 developed and developing countries. According to regression results, per capita income, literacy rate, and lower fertility are important determinants of life expectancy while living in a tropical area decreasing it. Another finding in this study shows that health expenditures in those countries failed to increase life expectancy. Following this study, Or ( 2000 ) analyzed the determinants of health outcomes in 21 industrialized OECD countries covering the period 1970–1992. This study presents gender-specific estimates separately for men and women. Fixed effects estimation results reveal a significant negative relationship between public health expenditure and women's premature death. The relationship also occurs for men, while GDP per capita dropped from the regression model due to high collinearity. Furthermore, GDP per capita and the proportion of white-collar workers reduce premature death for both men and women, while alcohol consumption increases it.

Franco et al. ( 2004 ) analyzed the impact of democracy on health utilizing political rights data of 170 countries. Empirical results show that people living in democracies enjoy better health conditions such as longer life expectancy, better maternal health, and lower child mortality. Following this, Besley and Kudamatsu ( 2006 ) investigated the nexus between democracy and health outcomes utilizing panel data from the 1960s to the 2000s. In their study, they used life expectancy at birth and child mortality variables for 146 countries as indicators of health outcomes. According to results, democracy has a positive and significant effect on life expectancy at birth and it also reduces child mortality. Safaei ( 2006 ) also investigated the impact of democracy on life expectancy and adult and child mortality rates with the data of 32 autocratic, 13 incoherent, and 72 democratic countries. According to the OLS estimation results, improving democratic institutions increases life expectancy and reduces child and adult mortality rates. Another finding of the study is that socioeconomic factors such as income, education, and access to health care services are important determinants of health status.

Owen and Wu ( 2007 ) found a positive relationship between trade openness and health outcomes using a panel of 219 countries. Health outcome measures of this study are infant mortality and life expectancy. Trade openness is one of the most important dimensions of globalization.

Kabir ( 2008 ) analyzed the determinants of life expectancy in 91 developing countries. Empirical results obtained are the opposite of the expected. According to results, per capita income, literacy rate, per capita health expenditure, and urbanization have no significant impact on life expectancy. On the other hand, the number of physicians has a positive and significant impact on life expectancy, while malnutrition reduces it. As a dummy variable, living in Sub-Saharan Africa is another factor that reduces life expectancy due to communicable diseases like HIV, malaria, etc.

Bergh and Nilsson ( 2010 ) used a panel of 92 countries in the period 1970–2005 to investigate the relationship between globalization and life expectancy. They used social, political, and economic globalization data separately, and the results show a significant positive effect of economic globalization on life expectancy at birth. But no significant relationship was found between social globalization, political globalization, and life expectancy. They also used average years of education, urban population, the number of physicians, and nutrition as control variables and the effect of economic globalization was still positive and significant.

Welander et al. ( 2015 ) examined the effects of globalization and democracy on child health in their panel data analysis for 70 developing countries covering the period 1970–2009. According to the results, globalization significantly reduces child mortality. In addition, democracy improves child health and it also increases the beneficial effects of globalization on child health. Following this study, Tausch ( 2015 ) analyzed the role of globalization in life expectancy in 99 countries. The results of OLS estimates show that globalization leads to inequality, and therefore, it reduces health performance in terms of life expectancy and infant mortality. These results are contradictory to positive views on the role of globalization in public health. However, in 19 of 99 countries, globalization increases public health performance. Ali and Audi ( 2016 ) also analyzed the role of globalization in life expectancy in Pakistan. According to ARDL estimation results, life expectancy is positively associated with higher levels of globalization. Another study on the Pakistan case proposed by Alam et al. ( 2016 ) concluded that foreign direct investment and trade openness which are important indicators of economic globalization affects life expectancy positively.

Patterson and Veenstra ( 2016 ) concluded that electoral democracies provide better health conditions compared to other countries. Their analysis includes annual data from 168 countries covering the period 1960–2010. Empirical results show democracy has a significant positive impact on life expectancy and it reduces infant mortality.

In their recent study, Shahbaz et al. ( 2019 ) investigated the impact of globalization, financial development, and economic growth on life expectancy. The authors used nonlinear time series analysis methods utilizing the data of 16 Sub-Saharan African countries over the period 1970–2012. Their results show that globalization, financial development, and economic growth affect life expectancy positively in 14 of 16 Sub-Saharan African countries.

The previous literature provides a lack of evidence in the context of globalization, democracy, and life expectancy relationship. There are also methodological weaknesses in previous empirical studies. First, it can be observed that previous studies are mostly based on traditional estimation methods. Second, the panel data analyses are based on the first-generation estimators that assume cross-sectional independence. This assumption is hard to satisfy due to integration among countries. In addition, ignoring the cross-sectional dependence results in inconsistent estimations. Particularly in empirical work in the context of globalization which refers to economic, political, and cultural integration among countries, considering the cross-sectional dependence becomes more important. Therefore, in order to make a methodological contribution to previous literature, we used second-generation panel time series methods considering cross-sectional dependence.

3 Methodology and data

According to the United Nations, achieving sustainable development goals requires global cooperation and partnership. Therefore, “partnerships for goals” has taken its place as the 17th sustainable development target. However, it was emphasized that some sub-goals should be realized in order to reach this goal. These include improving international resource mobility, helping developing countries to attain debt sustainability, promoting the transfer of information and technology between developed and developing countries, an open and rule-based free trade system, encouraging public–private and civil society partnerships, increasing transparency and accountability, and high quality and reliable data (United Nations 2019 ). In our empirical work, economic, social, and political globalization and democracy variables were used as proxies of the subcomponents of SDG17. In addition, the life expectancy at birth variable that mostly used in related literature as a proxy of health status and well-being, it is used in our study as a proxy of SDG3. In this study, we investigated the role of globalization and democracy in life expectancy in 16 low-income countries. Footnote 1 Following Barlow and Vissandjee ( 1999 ) and ( 2000 ), GDP per capita is used as a control variable in order to mitigate omitted variable bias. Our dataset is covering the period 1970–2017. Following the related literature, we present our model as follows:

where lex is life expectancy at birth which refers to the average number of years a newborn is expected to live. Life expectancy at birth data is provided by World Bank ( 2019 ) World Development Indicators. Life expectancy at birth indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life. The dataset is consisting of a weighted average of collected data from several co-founders. In Eq. 1 , X refers to the KOF Globalization Index developed by Dreher ( 2006 ). This index has been used in previous literature as a proxy of SDG17 (Saint Akadiri et al. 2020 ). The current version of the data published by the Swiss Economic Institute is revised by Gygli et al. ( 2019 ). The globalization variables are between 0–100, and 100 refers to the highest globalization level. In our analysis, we used subcomponents of globalization index such as economic (EC), social (SOS), and political (POL) globalization in addition to overall globalization (GLB). Due to high collinearity, the effects of different types of globalization are analyzed separately. Models 1, 2, 3, and 4 represent the estimations with overall, economic, social, and political globalization indexes, respectively. The democracy variable ( dem ) is provided from the Polity IV project dataset (Marshall and Jaggers 2002 ). While the increases in this indicator represent a more democratic regime, the decreases represent a more autocratic regime. Finally, gdp is real GDP per capita (constant 2010 $) and it is provided from World Bank World Development Indicators. All variables transformed to the logarithmic form except democracy due to negative values. In the estimation of the model, the panel data analysis methods are used.

3.1 Cross-sectional dependence

Traditional panel data methods are based on the assumption that no cross-sectional dependence exists among cross section units. However, this assumption is hard to satisfy due to rising economic, social, and political integration between countries. The estimations do not take this process into account may cause inconsistent results. Such results may also lead to incorrect inferences (Chudik and Pesaran, 2013 ). The existence of cross-sectional dependence in variables and the error term is obtained from the model analyzed with Pesaran ( 2004 ) ${\text{CD}}_{{{\text{LM}}}}$ and Pesaran et al. ( 2008 ) bias-adjusted LM test. These techniques are robust whether N > T and T > N. Therefore, ${CD}_{LM}$ and bias-adjusted LM ( ${LM}_{adj})$ tests are found to be appropriate and their test statistics can be calculated as follows:

Equation 2 shows the calculation of Pesaran ( 2004 ) ${CD}_{LM},$ and Eq. 3 is Pesaran et al. ( 2008 ) bias-adjusted LM test statistic. ${V}_{Tij}$ , ${\mu }_{Tij}$ , and ${\widehat{\rho }}_{ij},$ respectively, represent variance, mean, and the correlation between cross section units. The null and alternative hypothesis for both test statistics; ${H}_{0}$ : No cross-sectional dependence exist; ${H}_{1}$ : Cross-sectional dependence exist.

In the selection of stationarity tests and long-run estimators, the existence of cross-sectional dependence will be decisive. If the null of no cross-sectional dependence is rejected, second-generation methods that assume cross-sectional dependence should be used in order to provide unbiased and consistent estimation results.

3.2 Slope homogeneity

Pesaran and Yamagata ( 2008 ) proposed a method to examine slope heterogeneity in panel data analysis based on the Swamy ( 1970 )’s random coefficient model.

The calculation of the test statistic of Swamy’s model is given in Eq. 4 .

In Eq. 4 , ${\stackrel{\sim }{\beta }}_{i}$ and ${\overbrace{\beta }}_{WFE},$ respectively, indicate the parameters obtained from pooled OLS and weighted fixed effects estimation, while ${M}_{T}$ is the identity matrix. The test statistic obtained from Swamy’s model is improved by Pesaran et al. ( 2008 ) as follows:

where $\stackrel{\sim }{S}$ is the Swamy test statistic and k is a number of explanatory variables. ${\stackrel{\sim }{\Delta }}_{adj}$ is a bias-adjusted version of $\stackrel{\sim }{\Delta }$ . ${\stackrel{\sim }{Z}}_{it}$ =k and $Var\left({\stackrel{\sim }{Z}}_{it}\right)=2k(T-k-1)/T+1$ . The null and alternative hypothesis for both test statistics is given below.

The rejection of the null hypothesis shows that slope coefficients of Eq. 1 are heterogeneous. In the selection of panel data estimation methods, the results of those preliminary analysis are taken into account.

3.3 Unit root test

Pesaran ( 2006 ) suggested a factor modeling approach to solve the cross-sectional dependency problem. This approach is simply based on adding cross-sectional averages to the models as proxies of unobserved common factors. The Cross-sectionally Augmented Dickey–Fuller (CADF) unit root test developed by Pesaran ( 2007 ) is based on that factor modelling approach. This method is an augmented form of Augmented Dickey–Fuller (ADF) regression with lagged cross-sectional average and its first difference to deal with cross-sectional dependence (Baltagi, 2008 : 249). This method considers the cross-sectional dependence and can be used, while N > T and T > N. The CADF regression is:

${\stackrel{-}{y}}_{t}$ is the average of all N observations. To prevent serial correlation, the regression must be augmented with lagged first differences of both ${y}_{it}$ and ${\stackrel{-}{y}}_{t}$ as follows:

After the calculation of CADF statistics for each cross section ( ${CADF}_{i}$ ), Pesaran ( 2007 ) calculates the CIPS statistic as average of CADF statistics.

If the calculated CIPS statistic exceeds the critical value, it means that the unit root hypothesis is rejected. After the preliminary analysis of unit root, the existence of a long-run relationship between the variables in our model will be investigated via Westerlund and Edgerton ( 2007 ) cointegration test. After this, the long-run coefficients will be estimated using the continuous-updated fully modified (CUP-FM) estimator developed by Bai and Kao ( 2006 ) and Bias-adjusted OLS estimator developed by Westerlund ( 2007 ).

3.4 Cointegration test and long-run relationship

In this study, the cointegration relationship was investigated by Westerlund and Edgerton ( 2007 ) LM bootstrap test. This method considers cross-sectional dependence and provides robust results in small samples (Westerlund and Edgerton, 2007 ). This method is based on the following equation

where ${n}_{ij}$ is an independent and identically distributed process with zero mean and var( ${n}_{ij})$ = ${{\sigma }_{i}}^{2}$ . Westerlund and Edgerton ( 2007 ) suggested following LM test in order to test the null of cointegration

where ${S}_{it}$ is partial sum process of the fully modified estimate of ${z}_{it}$ and ${\widehat{w}}_{i}^{-2}$ is the estimated long-run variance of ${u}_{it}$ conditional on $\Delta {x}_{it}^{^{\prime}}$ . If the calculated LM statistic is below the critical value, the null of cointegration will be accepted. The critical values will be provided using the bootstrap method in order to prevent cross-sectional dependence.

In the estimation of long-run coefficients, the CUP-FM estimator was used and this method is based on the following regression

where ${\widehat{\lambda }}_{i}^{^{\prime}}$ refers to the estimated factor loadings and $\hat{y}_{{i,t}}^{ + } = y_{{i,t}} - \left( {\lambda _{i} ^{\prime } \hat{\Omega }_{{F \in i}} + \hat{\Omega }_{{\mu \in i}} } \right)\hat{\Omega }_{{ \in i}}^{{ - 1}} {{\Delta }}x_{{i,t}}$ indicates the transformation of the dependent variable for endogeneity correction. According to Bai and Kao ( 2006 ), CUP-FM estimator is robust under cross-sectional dependence. However, the assumption that the number of common factors (k) is known cannot be satisfied in practice (Westerlund, 2007 ). Therefore, Westerlund ( 2007 ) suggested a bias-adjusted estimator (BA-OLS) following the methodology of Bai and Kao ( 2006 ) except in the context of determining the number of common factors. The author suggested the estimation of k using an information criterion as

where $IC\left(k\right)$ is the information criterion. In this study, we determined the number of common factors via the Bayesian information criterion (BIC) as follows.

In the equation above, V(k) is the estimated variance of ${\widehat{u}}_{it}$ based on k factors. By minimizing the BIC, we obtain $\widehat{k}$ . Westerlund ( 2007 ) showed that the estimation of k provides better results compared to CUP-FM estimator assuming k is known. Both of the estimators require cointegrated variables in the long run.

3.5 Empirical results and discussion

The results of Pesaran ( 2004 ) ${CD}_{LM}$ and Pesaran et al. ( 2008 ) bias-adjusted LM tests are given in Table 1 .

The results given in Table 1 show that the null of no cross-sectional dependence is rejected at 1% according to both ${CD}_{LM}$ and ${LM}_{adj}$ test statistics in all variables. In addition, in the error terms obtained from models 1, 2, 3, and 4 the null of no cross-sectional dependence is rejected at 1%. These results show that the methods to be used in the analysis of the stationarity of the variables and the determination of the long-run relationship should consider the cross-sectional dependence.

The results of homogeneity tests developed by Pesaran and Yamagata ( 2008 ) are given in Table 2 . According to the results, the null of homogeneity is accepted at %1 in all models. Therefore, estimators assume parameter homogeneity are used in our analysis.

After the preliminary analysis of cross-sectional dependence, the CADF unit root test developed by Pesaran ( 2007 ) is found to be appropriate for our model because of its robustness under cross-sectional dependence. The results of the CADF unit root test are given in Table 3 .

In the analysis of unit root, constant and trend terms are both considered at level, while only constant term is added at first difference. Maximum lag level is determined as 3, while optimum lag level is determined by F joint test from general to particular. According to results, the null of unit root is accepted for all variables, while calculated CIPS statistics of first-differenced variables exceed 1% critical value. All variables have a unit root, and their first differences are stationary ( ${I}_{1})$ . Therefore, in order to determine the existence of a long-run relationship, we applied Westerlund and Edgerton ( 2007 ) panel cointegration test. This method considers cross-sectional dependence and can be used, while the series are integrated in the same order. The results are shown in Table 4 .

Constant and trend are both considered in the analysis of cointegration, and critical values are obtained from 5000 bootstrap replications. The results show that the null of cointegration is accepted for all models. There is a long-run relationship between life expectancy, globalization, democracy, and GDP per capita. After determining the cointegration relationship, we estimated long-run coefficients utilizing CUP-FM and BA-OLS estimators proposed by Bai and Kao ( 2006 ) and Westerlund ( 2007 ), respectively.

The long-run estimation results given in Table 5 show that overall, economic, social, and political globalization are positively associated with life expectancy at 1% significance level according to both CUP-FM and BA-OLS estimators. The results show that a 1% increase in globalization index increases life expectancy %0.014 and %0.015 according to CUP-FM and BA-OLS estimators, respectively. The impact of economic, social and political globalization indexes is 0.013%, 0.011%, and 0.015% according to CUP-FM estimation results while 0.014%, 0.012%, and 0.017% according to both estimators, respectively.

Our results confirms the findings of Owen and Wu ( 2007 ), Ali and Audi ( 2016 ), and Shahbaz et al. ( 2019 ) who found a positive relationship between globalization and life expectancy. Our empirical work also supports the evidence of Bergh and Nilsson ( 2010 ) in terms of positive effect of economic globalization on life expectancy. While the authors found no significant impact of social and political globalization on life expectancy, our results show that life expectancy is positively associated with both social and political globalization. The results we found contradict Tausch ( 2015 )’s evidences in 80 of 99 countries. However, according to his results, in 19 of 99 countries, globalization affects health positively. When these countries are examined, it is seen that 14 of them are countries in the low and lower-middle income groups. In this sense, it can be said that the evidence we found for low-income countries is in line with the author's evidence. As Dreher ( 2006 ) mentioned, despite its possible inequality effects, the net effect of globalization on development is mostly positive and our empirical work supports that idea. The effect of democracy on life expectancy is also positive and significant at 1% which confirms the findings of Franco et al. ( 2004 ) and Besley and Kudamatsu ( 2006 ). In electoral democracies, people living in poverty and suffering from health problems can easily attract the attention of policymakers compared to autocracies. This leads to the reallocation of resources to solve the primary problems of the society. In the context of sustainable development goals, our results show that there is no conflict between SDG3 (good health and well-being) and SDG17 (partnerships for the goals). The improvement of the health conditions of the poor countries depends on global partnership and economic, social, and political integration among countries. In addition, democracy is an important tool in achieving the goal of a healthy society, as it fosters accountability, transparency, and partnership between governments and the societies they rule. As stated in the introduction section, low-income countries show low performance in terms of health-related sustainable development goals, and their connections with global markets are weak compared to other countries. At the same time, democratic institutions are not developed. Our work supports the idea that in order to achieve SDG3, global partnership and democracy are required.

The GDP per capita that used as a control variable has a positive impact on life expectancy at a 1% level. These results support the evidence of Barlow and Vissandjee ( 1999 ), Or ( 2000 ), and Shahbaz et al. ( 2019 ). Individuals living in countries with high per capita income are expected to have higher welfare and have a longer life expectancy (Judge, 1995 ). In low-income countries where people still suffer from having difficulty in meeting basic human needs, increasing per capita income may lead to better nutritional status, easier access to advanced treatment methods and technology.

4 Conclusion

In this study, the effects of globalization and democracy on life expectancy are empirically investigated in low-income countries. While globalization and democracy indexes are used as proxy indicators of “Partnerships for the Goals (SDG 17),” life expectancy used a proxy of “Good Health and Well-Being (SDG 3).” With this, it is aimed to examine the existence of contradiction between those SDGs. In the estimation of the long-run relationship between the variables, second-generation panel data analysis methods that consider cross-sectional dependency are used. According to the results, the globalization index and its subcomponents such as economic, social, and political globalization are important instruments to achieve a healthier society. In addition, higher levels of democracy lead to higher levels of life expectancy. Finally, GDP per capita growth improves health status of countries.

The findings obtained from our study show that economic, social, and political integration of countries and democracy accelerate the process of achieving a healthier society. Therefore, it is seen that SDG3 and SDG17 targets are compatible with each other. In order to achieve SDG3, economic, social, and political integration between countries should be encouraged and democratic institutions should be improved. Policy makers should remove the barriers on globalization, and they should promote participation on international organizations and public–private and civil society partnerships.

Those countries are Benin, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of Congo, The Gambia, Haiti, Madagascar, Malawi, Mali, Nepal, Niger, Rwanda, Sierra Leone, and Togo.

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Guzel, A.E., Arslan, U. & Acaravci, A. The impact of economic, social, and political globalization and democracy on life expectancy in low-income countries: are sustainable development goals contradictory?. Environ Dev Sustain 23 , 13508–13525 (2021). https://doi.org/10.1007/s10668-021-01225-2

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How our interconnected world is changing

Globalization isn’t going away, but it is changing, according to recent research from the McKinsey Global Institute (MGI). In this episode of The McKinsey Podcast , MGI director Olivia White speaks with global editorial director Lucia Rahilly about the flows of goods, knowledge, and labor that drive global integration—and about what reshaping these flows might mean for our interconnected future.

After, global brewer AB InBev has flourished in the throes of what its CFO Fernando Tennenbaum describes as the recent “twists and turns.” Find out how in this excerpt from “ How to thrive in a downturn: A CFO perspective ,” recorded in December 2022 as part of our McKinsey Live series. 1 Please note that market conditions may have changed since this interview was conducted in December 2022.

The McKinsey Podcast is cohosted by Roberta Fusaro and Lucia Rahilly.

This transcript has been edited for clarity and length.

Globalization is here to stay

Lucia Rahilly: Pundits and other public figures have wrongly predicted the demise of globalization for what seems like years. Now, given the war in Ukraine and other disruptions, many are once again sounding its death knell. What does this new MGI research tell us about the fate of globalization? Is it really in retreat?

Olivia White: The flows of goods, the real tangible stuff, have leveled off after nearly 20-plus years of growing at twice the rate of GDP. But the flows of goods kept pace with GDP and even rose a little bit, surprisingly, in the past couple of years. Since GDP has been growing, that means actual ties have gotten stronger.

One of the most striking findings from this research was that flows representing knowledge and know-how, such as IP and data, and flows of services and international students have accelerated and are now growing faster than the flow of goods. Flows of data grew by more than 40 percent per annum over the past ten years.

Lucia Rahilly: Goods are a smaller share of total flows, a smaller share of economic output, than in the past. That doesn’t necessarily sound like a bad thing. Could it be a sign of progress?

Olivia White: The fact that certain goods are growing less quickly than other types of flows shows this shift in our economy and what’s most important to the way the economy functions. It comes on the back of a long history of different factors that influence growth and shifts in the way patterns work. What’s happening, in part, is that a variety of countries are producing more domestically—first and foremost China. That has been driving a lot of the flow down, if you take the longitudinal view, over the past ten years versus before.

The world remains interdependent

Lucia Rahilly: How interdependent would you say we are at this stage? Could you give us some examples of the ways we’re interconnected?

Olivia White: The top line is, every region in the world depends on another significant region for at least 25 percent of a flow it values most.

In general, regions that are manufacturing regions—Europe, Asia–Pacific, and China, if we look at it on its own because it’s such a large economy—depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals of different sorts. I’ll give you a few examples.

In general, regions that are manufacturing regions depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals. Olivia White

China imports over 25 percent of its minerals, from places as far-flung as Brazil, Chile, and South Africa. China imports energy, particularly in the form of oil from the Middle East and Russia. Europe is emblematic of these forms of dependency on energy. It was dependent on Russia for over 50 percent of its energy, but now that has drastically changed.

In some other regions in the world—places that are resource rich, like the Middle East, sub-Saharan Africa, and Latin America—those places are highly dependent on the rest of the world for their manufactured goods. Well over half the world’s population lives in those places. They import well over 50 percent of their electronics and similar amounts of their pharmaceuticals. They are highly dependent on other parts of the world for things that are really quite critical to development and for modern life.

North America is somewhat of a different story. We don’t have any single spot of quite as great a dependency, at least at the broad category level. We import close to 25 percent of what we use in net value terms across the spectrum, both of resources and of manufactured goods.

This doesn’t yet speak of data and IP, where, for example, the US and Europe are fairly significant producers/exporters. A country like China is a very large consumer of IP.

Lucia Rahilly: How interdependent are we in terms of the global workforce?

Olivia White: This is quite striking. We asked how many workers in regions outside North America serve North American demand. And we asked the same question for Europe. It turns out that 60 million people in regions outside North America serve North American demand, and in Europe the corresponding number is 50 million.

These numbers are very substantial versus the working populations in those countries. So when you consider how much of what North Americans or Europeans are consuming could be produced onshore, by onshore labor, the answer is not even remotely close to those sorts of numbers—at least given the means of production or the way services are delivered today and the role people play in that.

Lucia Rahilly: Let’s turn to some of the categories of flows that have increased in recent years. What’s driving growth in global flows now that the trade in goods has stabilized?

Olivia White: Flows linked to knowledge and know-how. Knowledge services that have historically grown more slowly than manufactured goods and resources, with increased global connection over time, have flipped over the past ten years.

Professional services, such as engineering services, are among those more traditional trade flows that have been growing fastest, at about 6 percent a year, versus resources, which have slowed to just around two percent. Anything that involves real know-how—engineering, but also providing, say, call center support—is in that category.

The flows of IP are growing even faster. Now, IP is tricky because accounting for it is a very tricky thing to do. But it roughly looks at flows of the fun stuff. In the report we talk about Squid Game , but IP also includes movies, streaming platforms, music, and any sort of cultural elements that we consume.

It’s also important to consider flows of patents and ideas and the way countries or companies will use ideas or know-how developed in one country to help what they do broadly across the world. Those flows have been growing at roughly 6 percent per year as well.

There are data flows—the flows of packets of data. For example, if we were in different countries while conducting this interview there would be the flows between us. There are also flows linked to our ever-expanding use of cloud and data localization. Data transfer is happening more and more quickly.

The flows of international students have also been rising. That was mightily interrupted by the pandemic, for reasons I don’t need to belabor, but these flows seem to be rebounding. It’s important to consider the degree to which those will jump back on their accelerated growth trajectory.

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How covid-19 has affected global flows.

Lucia Rahilly: You mentioned flows of international students dropping off during COVID, for the obvious reasons. Did other flows generally drop off during the pandemic? Or were there examples of flows that were particularly resilient throughout that period?

Olivia White: There’s some variation, but many flows were remarkably resilient—resilient in a way that’s a bit counter to the general narrative about what happened during the pandemic.

The flows of resources and manufactured goods jumped reasonably significantly in 2020 and 2021, both to levels of about 6 percent per year on an annualized basis. To some degree, what was happening is that cross-border flows stepped in to replace interrupted domestic production. Flows from Asia came in, for example, to the US or to Europe. We’ve seen some flows go in reverse directions. There was a bunch of interruption in domestic production, which was quite surprising.

Flows of capital also jumped quite a lot as people needed to shift the way they were financing themselves. Multinationals needed to shift the way they were financing themselves. Some were moving liquidity to different parts of the world under times of financial stress. But those jumped to levels of growth in the tens of digits from what had actually been reversed growth for the past ten years. All those things jumped. IP jumped a little bit; data remained high. So these flows have been remarkably resilient.

The good and bad news about resource concentration

Lucia Rahilly: You invoked concentration a bit when you talked about Europe being dependent on Russia for 50 percent of its energy. Can you say a bit more about what concentration means in this context and how it affects the dynamics of the way we’re connected globally?

Olivia White: From the global perspective, there are some products that truly originate in only a few places in the world, and all of us across the globe are dependent on those few places for our supply. Iron ore is quite concentrated, and cobalt is concentrated in the DRC [Democratic Republic of the Congo].

The second type of concentration is viewed from the standpoint of an individual country. Lucia, you talked about Europe and gas dependency.

For example, Germany was getting gas from only a very concentrated set of sources. These are places where, for a variety of reasons, countries have built up dependencies on just a small number of other countries.

Why has this happened? Why are we in this position? Cost is one reason. People have made decisions based on economic factors. Another reason is regional preference. Not all goods are created equal, even if they fall in the same category.

The third reason is preferential trade agreements between different countries or other forms of tariffs or taxes that shape the way flows occur. We’re in a world in which suddenly people are realizing they have to contemplate the consequences associated with concentration—not of suppliers, but of the country of origin from which they’re buying things.

Lucia Rahilly: It sounds like concentration also increases efficiency in some cases where those disruptions don’t occur. Is concentration always a bad thing? If we rethink concentration, can we expect to see some loss of efficiency in the interim?

Olivia White: No, it’s not always a bad thing. But there are a lot of considerations to make that involve costs, involve geopolitical relationships, involve the role that various countries want to play themselves, how they’re thinking about development, how they’re thinking about their workforces. All those things have to be part of the mix.

Imagine three or four different countries, each with three trading partners, and they’re largely different trading partners. Swapping off who’s supplied by whom is a huge problem of coordination.

How global chains will evolve

Lucia Rahilly: Geopolitical risks have obviously trained a policy spotlight on reimagining these global value chains, whether for security reasons or to strengthen resilience more generally. Accepting that the world remains interdependent, how do we see trade flows continuing to evolve in coming years?

Olivia White: Broadly speaking, there are four categories of potential evolution. Semiconductors are most prominent in public discussion. Electronics, more broadly, is one of the fastest-moving value chains since 1995, with 21 percentage points of share movement per decade. Pharmaceuticals and the mining of critical minerals are other examples. And they will be part of what shifts the way that flows crisscross the globe.

Second category: textiles and apparel. This category is not as sensitive in a geopolitical sense as some of the things I was talking about before. This category is one where you actually do have new hub creation right now. Consumer electronics, other forms of electric equipment that aren’t particularly sensitive, possibly fall in that category too.

Third category: IT services and financial intermediation or professional services. That will reconfigure the ways in which services flow.

Fourth and finally, there’s the stuff that’s just going to be steady—food and beverages, paper and printing. There’s no particular reason to expect that there are strong forcing mechanisms that will change the way those things are flowing across the world right now. They’re things that have remained relatively steady for the past ten or more years.

Global flows are necessary for a net-zero transition

Lucia Rahilly: Do we have a view on whether the evolving state of global flows is helping or hindering the net-zero transition ?

Olivia White: The way I’d put it is, there is no way we move quickly toward a net-zero transition without global flows. There are certainly things about global flows that are tricky from a net-zero perspective. It costs carbon to ship things and move things a long way. But in order for net zero to be attainable, we need to make sure that energy-generating technologies and fuels are able to flow across the world.

Energy-generating technologies include both the minerals that underpin construction of those technologies and the actual manufacturing. So, in the first category, think nickel and lithium. In the second category, think about the actual manufacturing of solar panels. The minerals themselves are processed in only a few countries around the world. So people are going to have to move them from one place to another. Maybe the world could have broader diversification of such things, but on average, the timeline from discovering a mineral to being able to produce it at scale is well in excess of 16 years. If we want to move fast, we have the luxury to move things across the world. Meeting cost curves for manufacturing at scale and in locations where you have at least some established presence is going to be important.

The final element that’s crucial with respect to net zero is cross-border capital flows. It’s really important that developing countries are able to finance shifts in the way that energy is produced and consumed in their countries, which means they may have to both spend more, at least as a ratio of GDP, and have less ability to spend, given other forms of development imperative.

Multinationals and global resilience

Lucia Rahilly: What’s the role of major multinational companies as we look ahead toward reimagining the future of our global connectedness?

Olivia White: The first thing that needs to be recognized is that major multinational corporations play an outsize role in global flows today. Multinationals are responsible for about 30 percent of trade. They’re responsible for 60 percent of exports and 82 percent of exports of knowledge-intensive goods. So they disproportionately drive flows, especially the ones associated with knowledge. And therefore, they’re going to be the center of managing for their own resilience, but also in a collective sense, for the resilience of the world.

The future of global flows

Lucia Rahilly: The media tends to focus on what some see as globalization’s imminent demise. Accepting that global ties continue to bind and connect us across the world, it’s also natural for folks to have pretty strong reactions to these intense and ongoing global disruptions that we’ve experienced in recent years. How would you sum up the way we think about the future of globalization at a high level?

Olivia White: The world we live in right now is highly dependent on flows. Will those flows reconfigure and shift? Yes, absolutely. They have in the past, and they will in the future.

Lucia Rahilly: Do we see anything in the research to indicate that the world is actually moving toward decoupling, which is also very much part of the media narrative?

Olivia White: If you look along regional lines, individual regions can’t be independent. If you just start to play with what sorts of decoupling of regions would be possible, you see very quickly that it’s not something you can do.

Now, is it possible that you would get groups of countries that become more strongly interconnected among themselves and less strongly connected with others? Absolutely. It’s possible to move in that direction. The question becomes, is there an actual decoupling, or do you just have a shift in degree? As with most things in the world, the answer tends toward the shift in degree rather than an abrupt or sharp true change or decoupling.

Lucia Rahilly: Does greater regionalization improve resilience?

Olivia White: To some degree you can say, “Look, if I’m self-sufficient, I’m more resilient.” On the other hand, all of a sudden you depend on yourself for everything, and that’s a point of vulnerability in the same way that getting it only from one other person would be a problem.

There are a whole host of reasons some degree of regionalization might help. You’ve got things closer to you. But dependency just on a few sets of people, whether or not they’re in your region, means you’ve got dependency on just a few points of potential weaknesses rather than a broad web, which in general is a more resilient and robust structure.

Lucia Rahilly: Thanks so much, Olivia. That was such an interesting discussion.

Olivia White: A real pleasure, Lucia. Thank you.

Roberta Fusaro: One example of resilience is AB InBev. Here to talk about how it’s prospering in the face of worldwide disruption is its CFO, Fernando Tennenbaum. This excerpt, “ How to thrive in a downturn: A CFO perspective ,” from our McKinsey Live series, was recorded in December 2022.

Lucia Rahilly: Fernando, we’re confronting an unusual constellation of disruptions: inflation, high interest rates driving up the cost of capital, geopolitical turbulence unexpectedly upending supply chains and sending energy prices spiking—it’s genuinely a volatile moment. Tell us, how is AB InBev faring in the current context?

Fernando Tennenbaum: We’re fortunate to be in a resilient category. Despite these twists and turns in different parts of the world, beer sales have been quite strong. That said, inflation has turned out to be much higher than expected. 2 Market conditions may have changed since this interview was conducted. We need to ensure our operations are in sync with the market, to meet this unique moment. We need to understand the state of the consumer and adjust our operations accordingly.

In emerging markets like Latin America and Africa, inflation is not new news. There are different levels of inflation, but inflation has been a part of these economies for a very long time. Consumers are more used to it, companies are more used to it—and it’s probably a more straightforward discussion.

Lucia Rahilly: You’ve spent much of your career in Latin America where, as you said, inflation has historically been much higher and more volatile than in the US or in Western Europe. Walk us through some of the lessons that we in the US, for example, could learn from.

Fernando Tennenbaum: Make sure that you’re always looking at your customers, and that you’re always keeping up with inflation. You should avoid lagging too much, and you should avoid overpricing compared with inflation. If you do too little or too much, you start disturbing the health of the consumer. If you get it right, it’s probably a good thing for the business. You have to make sure you navigate the rising cost environment while ensuring that the consumer is in a good place, your product is in a good place, and the category is a healthy one. It’s a balancing act.

You should avoid lagging too much, and you should avoid overpricing compared with inflation. If you do too little or too much, you start disturbing the health of the consumer. Fernando Tennenbaum

Lucia Rahilly: AB InBev has a diverse portfolio of brands. Volumes are good. Are customers trading up or down, during this period, between your premium and mass-market brands?

Fernando Tennenbaum: Premiumization continues to be a trend, and consumers continue to trade up to premium brands. Over the course of this year, people often asked whether consumers were trading down—and we see no evidence of trading down. That is true for the US, that is true for Africa, and that is true for Latin America—which is quite unique.

I don’t know if the future will be different; the world is changing so fast. But if you were to ask me ten years from now, I’d expect premium to be even bigger than it is today.

Lucia Rahilly: Let’s talk about uncertainty. The economy could play out in many different ways. How do you manage for that?

Fernando Tennenbaum: Let’s take our debt portfolio. Now is the moment that interest rates are going up. Inflation and borrowing are going up. Overall, this tends to be bad news—but for us, it’s quite the opposite because we don’t have any debt maturing in the next three years. We prepared for this when we saw the world going to a very different place at the beginning of 2020.

We ended up raising some long-term debt and repaying all our short-term debt. Now we’re left with a debt portfolio that has an average maturity of 16 years and no meaningful amount of debt maturing in the next three years—all at a fixed rate. Since we don’t need to refinance, we’re actually buying back our debt. Rising interest rates can be good when you can buy back debt cheaper than it cost to issue.

Lucia Rahilly: You became CFO at AB InBev in 2020, when pandemic uncertainty was at its peak. Talk to us about how you navigated that period.

Fernando Tennenbaum: The first thing we did in 2020 was pump up our cash position. Not that we needed it, but I felt it would give operations peace of mind. To be prepared, we started borrowing a lot of money. And we started taking care of our people. We needed to make sure our people were safe—that was priority number one.

Once we made sure our employees were safe, our operations were safe, then we looked at opportunities and started to fast-forward. I remember we looked at May, for example, and started to see a lot of markets doing well in terms of volume. We had a lot of cash. We started buying back some debt, especially near-term debt, to create even more optionality for the future.

We also accelerated our digital transformation. The moment was uniquely suited for it. Digital was a much better way to reach customers at a time when everybody was afraid to meet in person. In hindsight, the company ended up in a much better place today than it was three years ago—in terms of our portfolio, our digital transformation, and even financially—because we acted very quickly and created a lot of optionality during the first few months of the pandemic.

Lucia Rahilly: Any mistakes to avoid?

Fernando Tennenbaum: Looking back, I wouldn’t have done anything massively different. If I had known the outcome, I might have done things differently. But without knowing the outcome, I felt that the way we managed and the optionality we created set us up well.

Lucia Rahilly: Brewing is such an agriculturally dependent business, and agriculture has been significantly disrupted, both because of the war in Ukraine and because of climate-related risk. As CFO, how do you think about sustainability in terms of longer-term value creation?

Fernando Tennenbaum: Sustainability cuts across the whole of our business. We have a lot of local suppliers—20,000 local farmers. Our brewing processes are natural. The more efficient we are there, the more sustainable we are and, actually, the more profitable we are. We have local operations, and we sell to the local community. And most of our customers are very small entrepreneurs. The more we help them, the better they can run their business. And we say beer is inclusive because we have two billion consumers.

Lucia Rahilly: Is packaging also part of the sustainability approach?

Fernando Tennenbaum: Definitely. For example, we have returnable glass bottles. That’s very efficient, very sustainable, and from an economic standpoint, that’s probably the most profitable packaging we have. It’s also the most affordable for consumers. So it’s good for us, good for the environment, and good for the consumers.

Lucia Rahilly: You said beer is inclusive in part because so many of us drink it. How else do you approach inclusion at AB InBev?

Fernando Tennenbaum: Our two billion consumers are very different from one another. We need to make sure that, as a company, we reflect our consumers. Whenever we look at our colleagues, we need to make sure they reflect the societies where we operate—and we operate in very different societies.

A diverse and inclusive team is going to be a better team. That also applies to our suppliers. For example, if you think about suppliers in Africa, some are very poor. They manage to get access to technology, which means we can track whether they’re receiving the funds we pay them. We can track where agricultural commodities are being sourced. So how we financially empower them is also a very important part of our sustainability strategy.

Lucia Rahilly: Looking ahead, how are you thinking about innovation and investment in technology, in order to enable growth?

Fernando Tennenbaum: Innovation is a key component of beer, and there are two sides to that. One is innovation in products. The other is packaging. In Mexico, for example, we have different pack sizes for different consumption occasions and consumer needs.

Beyond that, there’s also technological innovation. Take our B2B platform, which we started piloting in 2019. Now, three or four years later, we have around $30 billion of GMV [gross merchandise value] in our e-commerce platform, which is accessible in more than 19 countries. That’s the optimal portfolio to improve customer engagement at their point of sale. Before we launched our B2B platform, we used to spend seven minutes per week interacting with our customers. Today, with our B2B platform, we interact with them 30 minutes per week. We increased the number of points of sales. For example, in Brazil, we used to have 700,000 customers, and now we have more than a million customers. Previously, they were buying our products from a distributor. Now we can reach them directly with the B2B system in place.

This connection with our customers means we can do a lot of other things, like our online marketplace, where third-party products generated an annualized GMV of $850 million, up from zero four years ago. That marketplace now continues to grow and to deliver a lot of value for our customers and for ourselves.

Lucia Rahilly: One more question: If you could give one piece of advice to a brand-new CFO of a large, multinational corporation, what would it be in this market?

Fernando Tennenbaum: Make sure you plan for different scenarios. The world is moving very fast, and you can’t expect it to unfold in a certain way. But if you have options, are agile in making decisions, and have a very engaged team, then regardless of the twists and turns, you are able to meet the moment. And you are definitely able to deliver on your objectives.

Lucia Rahilly: I lied. I’m going to ask you one more. How do you see, for these new CFOs, the relationship between sustainability and inclusivity and growth? Do you see those in tension?

Fernando Tennenbaum: There is this myth that you are either sustainable or profitable. At least at AB InBev, we’re sure they go hand in hand. The more sustainable you are, the more profitable you are, and the more value you create for your different stakeholders.

Fernando Tennenbaum is the CFO of Anheuser-Busch InBev. Olivia White is a director of the McKinsey Global Institute and a senior partner in McKinsey’s Bay Area office. Roberta Fusaro is an editorial director in the Waltham, Massachusetts, office, and Lucia Rahilly is global editorial director and deputy publisher of McKinsey Global Publishing and is based in the New York office.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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Global flows: The ties that bind in an interconnected world

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This resource guide is created to help users understand globalization, its history, the elements it comprises, and the current trends. It also provides resources for keeping current with the latest research on the subject for further exploration.

Global integration, driven by technology, transportation, and international cooperation, has resulted in our present-day interconnected world. Increased flow of goods, knowledge and people across borders brought prosperity to many countries, lifting many people out of poverty. Countries benefit from comparative advantage of specializing in what they do best as participants of the global economy by producing more goods at lower prices that lower-income households can afford thus raising their living standards.

Current labor market landscape reflects our deep economic interconnections. While many manufacturing workers lost their jobs to cheaper labor overseas there are a number of industries dependent on migrant workers. Critics of globalization point at the loss of manufacturing jobs as a downside of globalization. Many economists, however, have concluded that overall benefits of globalization outweigh the costs to individual workers or groups and suggest putting in place domestic policies that help workers adapt to the changing job market rather than limiting free trade. This and many other debates on pros and cons of globalization, and current trends are discussed in the resources included in this guide.

Even though the term ‘globalization’ came into more common use in the 1980s, it is not a 20th century phenomenon. This guide offers sources for exploring the history of globalization that can be traced back for centuries.

While our interconnections encompass nearly every aspect of life this guide focuses on the economic aspects of globalization, mainly trade, financial markets, migration and labor markets, and technological progress. We did include resources on the role of globalization in spreading pandemics in light of the devastation the COVID-19 pandemic has caused across the globe both in human lives and economy.

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Policy Making Processes: This course is designed to teach students how to “read” a country’s political and economic system. The course will examine how the evolution of different institutional frameworks in the countries of the Pacific region influences the way in which political choices are made.

Microeconomics for Policy and Management: This course introduces microeconomics, emphasizing applications to public policy. We examine tools such as marginal analysis and game theory to understand markets, the behavior of individuals and firms, and what role policy plays when markets fail to maximize social welfare.

Market Failures and Policy Interventions: Applies economic reasoning to public issues, policies and programs. It considers incentives and organizations; models of economic behavior, including markets, the absence of markets and interventions; the price system; policy objectives and instruments.

Policy Analysis and Public Welfare: The course explores the political and economic foundations of public policymaking, examining both the processes through which preferences of individuals are converted into public welfare policy and the public's response included are an introduction to the concepts of rationality, individual decision-making, cooperation, collective action and market failures. The course is writing-intensive and includes cases on the U.S.

Public Finance: This course introduces principles of taxation and expenditure analysis, public budgeting and assessment of budget priorities.

Policy Analysis and Decision Theory: This course introduces students to the methods of policy analysis and decision-making theory—methods to assemble panel data to capture the impact of new policy on observable data, decision-making theory, uncertainty, decision criteria, expected utility and risk.

Quantitative Methods I: This course is designed to provide proficiency in quantitative methods that are used for optimization and decision-making. The use of spreadsheets is applied to data analysis and problem-solving. Statistical theory and regression analysis are introduced.

Quantitative Methods II: This course covers elements from statistics that are central to business decision-making under uncertainty. In particular, regression analysis and estimation will be applied to problems of forecasting and optimization.

Public Policy Capstone: The capstone is designed to test the hard skills of policy design and evaluation by using them in the analysis of a real-world policy problem. The course requires a research paper that examines an existing public or nonprofit sector policy or managerial problem.

See the UC San Diego General Catalog.

Areas of Specialization

Students must complete at least one Area of Specialization of five courses (20 units). Courses taught outside of GPS will require permission for enrollment from the instructor.

American and Comparative Business Regulation

Sample Classes

Accounting and Finance for Policy Makers
California Politics and Public Policy
Corporate Non-Market Strategies
Corporate Social Responsibility
Cyber Security
Fiscal and Monetary Policy
Global Corporate Accountability: Governance, Responsibility, and NGOs
Governance, Public Administration and Development
Government and Regulation
Innovation and the New Economy
International Political Economy: Trade and Investments
International Trade Agreements
Organizational Economics
Technology, Trade and Globalization
The Political Economy of Authoritarian Regimes
Urban Economic Policy
Workers and Labor in International Markets

Environmental Policy

Sample Courses

Cost Benefit Analysis
Economics of Natural Resources
Environmental and Regulatory Economics
Environmental Law and Policy
Food Security
Introduction to Marine Biodiversity and Conservation
Marine Science, Economics, and Policy
Modeling Environmental Systems
Science and Marine Environmental Policy
Special Topics in Remote Sensing and Data Analytics - Environmental Policy
Special Topics in Remote Sensing and Data Analytics - Urban Policy
Sustainable Development
The Economics of Nonmarket Valuation
The Politics of Energy and Environmental Regulation

Health Policy

Comparative Social Welfare Policy
International Health Economics
Introduction to Health Policy (approved by MPH program)
Managing Mission Driven Organizations
Social Norms Changes and Development
The Politics of Economic Inequality
Aging: Social Health and Policy Issues
Case Studies in Health Care Programs for the Poor and Underserved Populations
Economics of Health Producers
Economics of Health Consumers
Environmental and Preventative Health Issues
Essentials of Global Health
Global Health and Diversity
Global Health Policy
Immigrant and Refugee Health
The US Health Care System

Inequality and Social Policy

Economic Development
Education Policy Around the World
Human Rights, Public Policy, and International Relations
Immigration and Immigration Policy

Peace and Security

Comparative Grand Strategy and Defense Policy
Corruption and Development
Counterinsurgency and Counter Terrorism
Debating US Security Policy
Foundations of Strategic Studies
Geopolitics, Insurgency, and Weak States
Humanitarian Interventions
International Law and Regulation
Policy, Politics, and Markets in Modern Financial Crises
Public Opinion and Foreign Policy
State Building and Modeling State Capacity
The New ‘New’ Civil Wars
The Political Economy of Foreign Aid
The Political Economy of State Capacity
U.S. National Security and Decision Making
Violence in Latin America

Program Design and Evaluation

Advanced GIS and Remote Sensing
Applied Data Analysis and Statistical Decision Making - QM III
Big Data Analytics
Designing Field Experiments
Evaluating Social Programs
Evaluating Technological Innovation
GIS and Spatial Data Analysis
Integrated Development Practice
Making Policy with Data
Management of Nonprofit Organizations

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Guangzhou Shows Why China Is So Attractive to the Global South

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China power | economy | east asia.

Move over, New York: China’s southern metropolis is the new global city of opportunity.

Guangzhou Shows Why China Is So Attractive to the Global South

According to United Nations projections , by 2100, eight out of 10 people will live in Asia or Africa. This demographic shift starkly contrasts with the trends in Europe and North America, where many countries are struggling with demographic decline. While numbers alone do not define the future, such a significant disparity between the populations of emerging economies and those of developed ones will inevitably reshape the global economic and political order. This means globalization too will be very different from the one we know.

These global changes are already tangible, and cities provide an ideal spot to observe them. New York has been the quintessential city of the current era of globalization, which has been shaped and dominated by the West. It is a city of opportunity that, in the 19th and 20th centuries, attracted people from all over the world seeking the American dream. In contrast, Guangzhou, the capital of China’s Guangdong province, offers a glimpse into the future of globalization.

It’s no coincidence that this city is in China, the country that best exemplifies the world’s ongoing transition. In roughly 50 years, China has transformed from one of the poorest countries to the world’s second-largest economy. It has become a land of opportunity too, drawing individuals from diverse regions, especially those left out of today’s globalization benefits.

Guangzhou, the urban center of the Pearl River Delta, is renowned for its multiculturalism – a stark contrast to the rest of China, which has a lower percentage of foreign residents than even North Korea . Entrepreneurs from Ethiopia, Kenya, Sudan, Pakistan, and Iraq can be found in the city.

An Arab supermarket in Xiaobei, Guangzhou, is testament to the Middle Eastern diaspora population in the Chinese city. Photo by Gabriele Manca.

Foreigners have long been part of Guangzhou’s history, dating back to when it was a major port on the ancient Silk Road. The maritime route connecting Guangzhou to the Persian Gulf via the South China Sea and the Indian Ocean was the world’s most important at that time. Today, Guangzhou is a key hub for purchasing low-cost goods, often counterfeit, exported to South and Southeast Asia, Latin America, and predominantly the Middle East and Africa.

“If you go to Shanghai, you’ll find more Europeans and Americans; big business happens there. Here, we do things on a smaller scale, buying some goods and reselling them back home,” Ahmed told me in an Arab restaurant in Xiaobei, a district in Guangzhou.

Ahmed, an Ethiopian, has been traveling between Addis Ababa and Guangzhou for about 20 years. He knows China well and loves it, particularly appreciating “the safety and the freedom to be who you want to be, thanks to the many opportunities China offers.” That phrase had a strong flavor of the old American dream but with a Chinese twist.

Over the years, Xiaobei has emerged as “Little Africa,” becoming the focal point of the African community in Guangzhou, which is the largest in Asia. Many Middle Eastern men and women also live there. Providing an exact number is nearly impossible, both because the government does not release such data and due to the often transient nature of foreigners’ stays in the city.

A woman walks down the street in Xiaobei, Guangzhou’s “Little Africa.” Photo by Gabriele Manca.

Ten years ago, there were an estimated 500,000 foreigners in Guangzhou. By 2018, this number had decreased to around 80,000. The headcount has fluctuated over time, but the pandemic drastically reduced it. During the two years of China’s zero-COVID policy, many foreigners faced extreme precariousness due to the lack of Chinese citizenship. The inability to conduct their businesses, the main reason for being in Guangzhou, forced them to return home.

Contributing to their departure was also a rise in racism reported after the COVID-19 pandemic began. Many Africans reported being targeted with suspicion and subjected to forced evictions and arbitrary quarantines. The pandemic was indeed a turning point.

I visited Guangzhou this July to see how the Arab and African presence in the city had changed. Two years after China reopened, Xiaobei remains the emblematic Arab-African district, but with a significant difference: few foreigners now live there year-round. Most individuals only remain for a few months, which is sufficient time to conduct their business.

Citizens from Arab and African countries primarily occupy hotels and hostels. In the hostel where I was staying, I met Hassam, a Sudanese man who has been coming to China for over a decade. He is fluent in Mandarin and has studied computer science in Beijing. After living in various Chinese cities, he now has an import-export business.

A road sign advertising shipping from China to Iraq in Arabic, English, and Chinese in Guangzhou, China. Photo by Gabriele Manca.

The ongoing vitality and dynamism of trade between Guangzhou and African and Middle Eastern countries are evident from the numerous street signs advertising shipping services, even door-to-door, from China to Iraq or Nigeria.

Among the remaining Africans residing in the city, the majority are affluent and may not be actively engaged in business. This is the case for Abdel, who came from Tanzania and is studying mechanical engineering. His parents moved to China five years ago for work-related reasons. However, he plans to graduate and move to “somewhere in Europe or Canada” because, he says, China now offers fewer opportunities than when his family first arrived. Additionally, it’s not easy being an African in China; he often faces discrimination, and the language barrier has limited his friendships to those in his international university program.

Even with the major changes brought about by the pandemic, Guangzhou still showcases a unique form of globalization. It reflects a grassroots globalization marked by independent traders who buy goods in large quantities and sell them in their home countries through official retail stores and informal street markets. The city on the Pearl River reflects how many emerging economies view China: abundant in opportunity and a paradigm of development and modernity, different from European or American models.

These micro-level dynamics mirror the macro-level, where China cultivates political and economic relationships with emerging economies. Today, Beijing is the primary trading partner for most emerging African and Middle Eastern economies. Its role as a central hub and driving force of an alternative form of globalization is well represented by the Belt and Road Initiative, the cornerstone of China’s economic and geopolitical strategy, which aims to promote its standards globally, both financial and political. It’s no coincidence that most countries involved in the Chinese project are emerging economies, with crucial nodes in the Middle East and Africa.

Over the past decade, through economic influence, soft power, political pressure, and diplomatic initiatives, China has advanced its worldview, offering it to countries where the West’s appeal has been undermined by years of exploitation and paternalism. In many cases, the Chinese charm offensive is working.

African Countries Respond to Guangzhou’s ‘Anti-Epidemic Measures’

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We examined the impact of globalization, governance, and financial development on per capita income representing economic growth for 156 countries across the globe during 2002-2018. The analysis is categorized into full samples, and sub samples (i.e., low, lower, upper middle-, & high-income countries). The empirical methodology consists of 1st and 2nd generation panel unit root tests, panel ...
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Master of Public Policy
Core Courses All candidates must complete the following courses with a C- or better. The courses listed below are completed in the first year of study. Policy Making Processes: This course is designed to teach students how to "read" a country's political and economic system. The course will examine how the evolution of different institutional frameworks in the countries of the Pacific ...
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Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

Introduction

Literature Review

Model Specification

Methodology and Data

Data and Empirical Strategy

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Conclusions and Implications

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The State of Globalization in 2021

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

Hashem Salarzadeh Jenatabadi

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Literature Review

Model Specification

Methodology and Data

Data and Empirical Strategy

Findings and Discussion

Conclusions and Implications

Supporting Information

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6 Pros and Cons of Globalization in Business to Consider

What Is Globalization?

How Globalization Affects Daily Life

Advantages of Globalization

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3. Increased Cross-Border Investment

Disadvantages of Globalization

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Managing the Risks of Globalization

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The impact of economic, social, and political globalization and democracy on life expectancy in low-income countries: are sustainable development goals contradictory?

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