CC BY
6
https://doi.org/10.29013/ESR-21-5.6-86-89
Kasimovskaia Elena Nikolaevna, PhD (Economics), Associate Professor, Lomonosovs Moscow State University, Institute of Asian and African Studies E-mail: kasim@iaas.msu.ru; ekasimovskaya@gmail.com
DEVELOPING COUNTRIES UNDER GLOBALIZATION: ECONOMIC GROWTH AND COUNTRY RISKS
Abstract. The article reflects the outcomes of a quantitative study of the relationship between the processes of globalization and economic growth. It covers 29 countries in Asia and Africa and the period from 2001 to 2019. Hypotheses about the relationship between the level of globalization, country's investment risk premium and economic growth are considered. Based on the results of the regression analysis of the panel data for the mentioned above period, it was concluded that the relationship between economic dynamics and the degree of inclusion ofAsian and African countries in the global economy was negative.
Keywords: globalization, globalization index, country investment risk premium, economic growth, complementary policy effects, regression analysis.
Introduction. The impact of globalization pro- processing are applied, and quantitative information cesses on the dynamics of economic development has been the object of attention of scientists since the early 90s of the last century [1, 523-544]. In a broad sense, according to Stiglitz's definition, globalization refers to the process of economic integration of countries by increasing the flow of goods, services, capital and labor between them [2]. However, the consequences of the integration of previously relatively isolated national markets for goods and factors of production into a world economy for different countries and groups of countries are ambiguous.
Critical literature review and the theoretical framework of the research. It is possible to talk about three main directions that have historically developed in the course of studying the impact of globalization processes in their various manifestations on the economic growth and economic development of a country or groups of countries._The first direction is represented by works that prove the positive impact of globalization on economic growth [3,1-118]. However, as research deepens, new methods of data
about an ever-wider range of countries is drawn into circulation, a second direction is being formed, whose supporters believe that the consequences of integration into the world economy for a country can be both positive and negative. It is important to distinguish between the forms of a country's involvement in the world economy, the level of market development, and many other factors [4,289-321; 5, 55-65]. A special milestone in the study of the impact of globalization on the economic development of countries was the new integral index of globalization (abbreviated KOF) proposed in 2006 by A. Dreher [6,1091-1110], which is currently the most common indicator of the level of globalization ofa country. Finally, the third direction in the study ofthe problem ofthe impact ofglobalization on economic growth is represented by works proving the nonlinear relationship between the variables under study. As the main reason for this, supporters of this trend consider the effects of complementary policies, which are manifested in different ways in different countries [7, 151-173; 8]. It should be noted that iffor
developed countries there is a fairly extensive range of publications on the problem under consideration, then the array of developing countries, as well as countries with a transitional market economy, has not yet been sufficiently studied, especially at the country level. The range of studies in the countries of Asia and Africa is completely limited to just a few works, which makes this area very relevant [9, 795-805; 10, 1106-1123].
Research methodology. The theory of international economics assumes, that the country's involvement in the world economy should contribute to its economic growth by being able to take full advantage of the benefits of the international division of labor. On the other hand, the high country's premium for investment risk reflects certain difficulties: lack of guaranteed return on investment, fears ofpotential investors and, as a consequence, relatively less mobility of production factors. It can be assumed that in this case, a negative relationship between the country's economic growth rate and the country investment risk premium will be expected. Main research question could be formulated as follows: how the level of globalization and the investment risk premium affect the country's economic growth? The quantitative parameters of the simplified model are the GDP growth rates (dependent variable), the globalization index, and the country investment risk premium (regressors). Naturally, the economic growth itself is determined by a number of factors, which are not considered here. In order to neutralize the possible shifts of the estimates of the regression due to a small range of parameters, the model was tested within three types of effects - fixed, random and temporary ones. Of course, such an extension cannot fully compensate the lack of the qualitative vari-
ables and imposes certain restrictions on the results obtained. Nevertheless, it seems interesting to check the assumption that there is a relationship between the economic growth of Asian and African countries and the country's openness, meaning involvement in the world economy, on the one hand, and the existing risks for investors, on the other.
Assumption 1: low country investment risk premium encourages countries to join the globalization process.
Assumption 2: the dynamics of a country's GDP is determined both by the degree of involvement in the global economics and the size of the risk premium in the national economy.
Hypothesis testing was carried out on the basis of panel data from 2001 to 2019 for the above indicators for 29 countries of Asia and Africa. The World Bank databases [11], regular statistics on the globalization index [12] and the quantitative estimates of the investment risk premium by A. Damodoran [13] were used.
Mainfindings and outcomes. The results of the regression analysis for a sample of29 countries are shown in Table 1. The columns are separately constructed regressions. The dependent variable is the same for all models; the models use two regressors. 7 modifications ofthe model that were described above are considered. For the group ofcountries in Asia and Africa (29 countries) it is possible to talk about a statistically significant relationship between the economic growth, the level of globalization and the country risk premium with 99% probabilit. The coefficient ofdetermination in all cases are so low that they indirectly allow to expect a nonlinear relationship between the variables ofthe simplified model despite any modification.
Table 1. - The impact of globalization and country risk premium on economic growth in Asian and African countries. regression analysis outcomes
Dependent variable: economic growth
Regressor (1) (2) (3) (4) (5) (6) (7)
1 2 3 4 5 6 7 8
Globalization -0.25 * (0.07) -0.17 * (0.04) -0.25 (0.17) 0.0007 (0.07) -0.06 (0.09) -0.06 (0.04) -0.07 (0.04)
1 2 3 4 5 6 7 8
Country investment risk premium -38.70 (39.25) -42.35 ** * (15.29) -6.73 (46.88) -11.18 (12.47) 13.41 (15.04) -15.79 (-15.7) -0.25 (12.42)
Constant 19.37 * (4.58) 16.38 * (2.53) 2.24 (1.06) 5.68 (4.61) -3.67 (0.92) 9.71 * (2.59) 9.20 (2.87)
Time period Only 2001 Only 2019 Difference 2001-2019 2001-2019 2001-2019 2001-2019 2001-2019
Individual effects Yes Yes
Time effects Yes Yes
Random effects Yes Yes
Resistant to heteroskedas-ticity and autocorrelation standard errors Yes Yes
F-statistic / chi-squared test (p-value) 0.29 (0.75) chi2: 2.32 (0.12)
R2 0.29 0.42 0.01 0.30 0.45 0.29 0.35
Notes: Statistical significance ***(10%), **(5%), * (1%)
Within the considered model specifications, statistically significant results were obtained for versions 1 and 2 with a probability of 99%. It is interesting to note that within the sample for 2001 only the globalization had a negative impact on the economic growth. Country risk did not affect the economic development of the above-mentioned countries. But in 2019 the country risk premium together with the globalization have negatively influenced on the economic development ofAsian and African countries: 2001: GR = 19.37-0.252GLOB (p > 0.01) 2019: GR = 16.38-0.167GL0B - 42.35 CRP (p > > 0.01) The degree of sensitivity of economic dynamics to the globalization indicator has noticeably decreased over 18 years, while the relative importance of the risk premium has increased. It means, that, seteris paribus, an improvement in the investment climate (which can be considered as the expected positive effect of complementary policies) within
this group of countries can give a much greater impetus to macroeconomic dynamics than the policies towards global integration.
Conclusions. Thus, a quantitative analysis of the impact of the degree of a country's involvement in the world economy, as measured by the globalization index, and the complementary policy component in the form of a country risk premium on economic growth rates of Asian and African countries yielded contradictory results and partially confirmed the hypothesis. Analysis of the impact of globalization on the economic growth ofAsian and African countries also showed the negative nature of the relationship. But the degree of sensitivity of the variable to the indicator of the level of globalization relatively decreased over the period from 2001 to 2019. The country risk premium was statistically insignificant for Asia and Africa in 2001; in 2013 it is significant, but only at the 10% p-level. A low coefficient of determination for all considered models was expected, since economic growth
is determined by a larger number of parameters and factors than those included in the analysis. Thus, under the undifferentiated approach to the target group of countries a statistically significant negative relationship was revealed between the level of globalization and economic growth, and the degree of sensitivity of the dependent variable to changes in the globalization index increased over the period from 2001 to 2019. A negative dependence of economic growth on the level of the country premium for investment risk was also revealed, but this relationship was statistically significant only in 4 modifications of the model.
Research limitations and perspectives. This study is based on a simplified quantitative analy-
sis of the most general parameters reflecting the processes of globalization and economic growth. This means that the results obtained should be interpreted as preliminary ones. Although both the globalization index and the country risk indicator, to a certain extent, reflect the qualitative essence of these processes, the qualitative characteristics as independent variables were not considered. An in-depth study of the effects of complementary policy could significantly compensate for this drawback, clarify and correct the preliminary results obtained. However, it seems impossible to touch upon these issues within the framework of an undifferentiated country approach.
References:
1. Dollar D. Outward-oriented developing economies really do grow more rapidly: evidence from 95 LCD's, 1976-1985. Economic Development and cultural change 40, 1992. - P. 523-544.
2. Stiglitz J. Globalization and its Discontents. - New York: WW NORTON, 2003.
3. Sachs J., Warner A., Aslund A., Fisher S. Economic Reform and the Process of Global Intergration. Brookings Papers on Economic Activity, 1995. - P. 1-118.
4. Alesina A., Grilli V., Milessi-Feretti G., Center L., del Tesoro M. The Political Economy of Capital Controls. In: Capital Mobility: The impact on Consumption, Investment and Growth. - Cambridge, Cambridge University Press, 1994. - P. 289-321.
5. Rodrick D. Who Needs Capital-Account Convertibility? In: Should the IMF Pursue the Capital-Account Convertibility? Essays in International Finance. Princeton, Department of Economics, Princeton University, 1998. - P. 55-65.
6. Dreher A. Does Globalization Affect Growth? Empirical Evidence from a New Index. Applied Economics - 6. 2006. - P. 1091-1110.
7. Chang C. P., Lee C. C. Globalization and Economic Growth: A Political Economy Analysis for OECD Countries. Global Economic Review - 39. 2010. - P. 151-173.
8. Samimi P., Jenatabadi H. S. Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE9(4): 2014. - e87824. Doi:10.1371/journal.pone.0087824
9. Rao B. B., Vadlamannati K. C. Globalization and growth in the low-income African countries with the extreme bounds analysis. Economic Modelling - 28. 2011. - P. 795-805.
10. Gu X. N., Dong B. M. A Theory of Financial Liberalisation: Why are Developing Countries so Reluctant? World Economy - 34. 2011. - P. 1106-1123.
11. World Bank Databases - URL: http://www.worldbank.org
12. KOF Index of Globalization - URL: http://globalization.kof.ethz.ch
13. Country Risk Premium - URL: http://pages.stern.nyu.edu/~adamodar
