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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.

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].

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. 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 — 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.

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

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. The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story.

Globalization and Trade and Poverty: Crash Course Economics #16

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.

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.

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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.


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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.

The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. National Center for Biotechnology Information , U. Published online Apr Author information Article notes Copyright and License information Disclaimer. The authors have declared that no competing interests exist.

Received Nov 5; Accepted Jan 2. 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 properly credited. The Name and Definition of Indicators. Abstract This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. 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].

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

Literature Review The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. 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 In Eq. Data and Empirical Strategy We estimated Eq. 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 Baseline results. Variables Coefficient t-statistics p -value L1. Cross-country panel data consisting of annual spanning — Table 2 Economic globalization and Growth: A full set of year dummies is included to control for common time effects.

The full regressions includes lagged of GDP per capita, government consumption, consumer price index, secondary school enrolment, gross capital formation, Liquid liability and ICRG. Table 3 Growth effect of globalization at different income levels of countries. Variables Coefficient t-statistics p -value KOF 0. Conclusions and Implications Numerous researchers have investigated the impact of economic globalization on economic growth. DOCX Click here for additional data file. Journal of International Economics Collins W, Williamson J Capital goods prices, global capital markets and accumulation: Obstfeld M, Taylor A The great depression as a watershed: University of Chicago Press: The Economic Journal Dollar D Outward-oriented developing economies really do grow more rapidly: Economic development and cultural change Journal of economic growth 7: Edwards S Openness, productivity and growth: Fischer S Globalization and its challenges.

American Economic Review The American economic review Harrison A Openness and growth: A time-series, cross-country analysis for developing countries. Journal of development economics Brookings Papers on Economic Activity Vamvakidis A Regional integration and economic growth. The World Bank Economic Review Levine R, Renelt D A sensitivity analysis of cross-country growth regressions.

Empirical Evidence from a New Index. Leiderman L, Razin A, editors. The Impact on Consumption, Investment and Growth.

Latin America and the Challenges of Globalization An Op-Ed

Rodrik D Who needs capital-account convertibility? Department of Economics, Princeton University. Rodriguez F, Rodrik D Trade policy and economic growth: Warner A Once more into the breach: Economic growth and integration. Center for Global Development Cambridge Cambridge University Press. Levine R International financial liberalization and economic growth. Review of International Economics 9: The role of policy complementarities. Why are Developing Countries so Reluctant? Notes on Common Globalization Indexes. Knowledge Management, Economics and Information Technology 1 7.

Journal of economic cooperation among Islamic countries Journal of economic cooperation Ates D Economic liberalization and changes in fundamentalism: The case of Egypt. Middle East Policy Oyvat C Globalization, wage shares and income distribution in Turkey. Cambridge Journal of Regions Economy and Society 4: Guillaumin C Financial integration in East Asia: Evidence from panel unit root and panel cointegration tests. Journal of Asian Economics Journal of the American Statistical Society The Review of Economic Studies Evidence from panel data.

Brunner A The long-run effects of trade on income and income growth. Osang T, Pereira A Import tariffs and growth in a small open economy. Journal of Public Economics Exploring the effects of financial markets on linkages. National Bureau of Economic Research working paper. Global Economic Review Birdsall N A stormy day on an open field: Globalisation, living standards and inequality. Reserve Bank of Australia and Australian.


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Social Science Quarterly Policy Research Working Paper No. Support Center Support Center. Please review our privacy policy. Human capital School enrollment, secondary. Financial development Liquid liabilities. If Latin America and the Caribbean fail to grasp these new opportunities, then the region faces a future of low productivity, probably reliant upon production of traditional commodities, lagging farther and farther behind the highly developed economies.

Moreover, greater international capital mobility has increased the vulnerability of relatively small, open economies to shocks caused by deficient domestic policy or factors beyond their control. For instance, integrated capital markets are prone to higher exchange rate volatility. And often, countries face structural changes and transformations that carry substantial costs and dislocations—such as unemployment in some sectors—which policymakers must take into account, and mitigate.

The political difficulties and the political will required to move this process forward are very considerable. In the past decade, several countries in the region had achieved mixed results in coping with the short-term costs of adjustment. Effective and well-targeted social safety nets can provide safeguards against excessive social costs that may arise from structural change. They would also help spread the net benefits of globalization, thereby strengthening economic growth and social equity. So the big question is whether Latin America and the Caribbean can harness the new opportunities, and simultaneously safeguard against the risks.

My answer is yes, but only if the countries implement appropriate macroeconomic policies that are sustainable over time, complemented by a package of social measures aimed at making globalization work in the people's favor.

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First and foremost, they need to foster good governance and transparency in economic policymaking. The pressures of globalization accentuate the benefits of sound policies and the costs of poor policies. Countries with sound macroeconomic and structural policies will attract trade and capital, and will ultimately put themselves on a path of convergence with the more advanced economies. Second, countries must continually modernize their regulatory framework. Information technologies pose new challenges for national regulators. In the financial area, faster progress is needed to strengthen the supervision and regulation of institutions in a world of highly mobile financial flows.

This is especially challenging when countries are also trying to liberalize their financial sectors. Third, the demands of a knowledge-based economy make it essential to invest heavily in education. Great strides have been made in the region on increasing coverage, particularly in primary schooling. Now policymakers need to focus on dramatically improving the quality of education at all levels. Fourth, they need to establish a reliable, cost-efficient infrastructure. Many countries have greatly improved the supply of critical services—in the areas of power, telecommunications, banking, and transport.

But they need to go much further in this direction, always within a regulatory framework to ensure that private sector participation leads to benefits for consumers and increasing competitiveness. Fifth, they need contingency mechanisms to cushion economies against the adverse effects of fluctuations in the international economic environment. Stabilization funds—well-designed and transparent—would smooth price fluctuations for large commodity exporters.

These are, of course, no substitute for sound fiscal policy. With economic recovery underway, and confidence returning to financial markets, most countries in the region now face an ideal setting for robust action on these necessary policies, which will determine whether the region can at last take its place among the successful societies in the world. The challenge is great, but the choice is clear.

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