Revisiting economic globalization‐led growth: The role of economic opportunities

• Published date: 01 May 2021
• Author: Shahid Ali,Zilakat Khan Malik
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2193

ACADEMIC PAPER

Revisiting economic globalization-led growth: The role of

economic opportunities

Shahid Ali | Zilakat Khan Malik

Department of Economics, University of

Peshawar, Peshawar, Pakistan

Correspondence

PhD Scholar, Department of Economics,

University of Peshawar, Peshawar, Pakistan.

Email: shahid_aerc@yahoo.com

This study empirically tests the existence of complementarities between economic

globalization with a comprehensive set of economic opportunities in affecting eco-

nomic growth. Using System GMM technique for a panel data of 124 countries over

the period of 1996 to 2017, this study finds that countries with more productive

capabilities get more benefits from economic globalization. From the results of

threshold regressions, it is evident that a marginal change in economic globalization

will, ceteris paribus, have no effect on growth when HTE is at 4.478, SUP is at 11.0,

and TSB is at 33.50. Further, the results suggest that rich countries managed to take

more advantage from globalization as compared with poor countries.

JEL CLASSIFICATION

F02; F15; C23

1|INTRODUCTION

Globalization is attached with multidimensional socioeconomic concerns.

Since 1970s, the momentum of globalization has increased by leaps and

bounds but still it is coinciding with low growth rate in majority of indus-

trialized economies. During the same regime, a paradigm shift was also

recorded in European socialistic countries. Besides economic growth,

globalization is also attached with liberalization and deregulation and

most importantly technological growth. The ec onomic impact of globali-

zation can be hardly separated from overall impact of globalization and is

still debated in literature. Furthermore, time period to study the dynamic

effects of globalization is also a difficult task to monitor. The impact in

medium and long run is quite different from those of immediate and

short run. In spite of these challenges, globalization is still considered a

vibrant indicator promoting socioeconomic consequences (Ghai, 1997).

International trade is a source of creating job opportunities, rise in wage

rate and improvement in working environment in both developed and

developing countries. Nevertheless, policies to promote open trade are

needed to benefit the world from internationalization and to have the

ultimate impact on key economic indicators like employment generation,

poverty alleviation, and economic growth (Newfarmer &

Sztajerowska, 2012).

The observed cross-country income differences over the past two

decades could be largely attributable to the complementary policies.

Therefore, policycomplementarity is prerequisitefor economic growth.

An increasein economic globalization couldnot contribute to growth in

countries with weak economic opportunities. Hence, these countries

will not get advantage from globalization to its full potential in the

absence ofthese preconditions. Manyauthors have identifiedthe struc-

tural and socioeconomic factors in the linkage between globalization

and economic growth. Hence, globalization positively affects economic

growth, implicitly assuming qualityof structural and socioeconomicfac-

tors across countries. The heterogeneityin the country's growth perfor-

mance is due to the policy complementarities that are helpful to

enhance economic growth. The policy complementarities are neededto

accompany trade openness to enhance economic growth. Therefore,

policy complementarity is prerequisite for economic growth. Financial

liberalizationenhances output more in countries,where quality of insti-

tutions are improved (Calderón & Fuentes, 2006). Nevertheless, policy

complementarities are putting restrictions in optimal growth strategy

design in countries with resistance to reform and unfavorable initial

conditions (Calderón & Fuentes, 2006). Chang, Kaltani, and

Loayza (2009) found that the reforms made in financial sector, gover-

nance, labor market, and infrastructure and trade affect the globaliza-

tion growth nexus in developing countries. Similarly, Gu and

Dong (2011) considered financial development is a prerequisite for

effective financial globalization. The author found that without

improvement in financial system, globalization leads to volatile growth

in countries. Samimiand Jenatabadi (2014) argue that there existcom-

plementarities between economic globalization and structural

Received: 11 May 2020 Accepted: 14 May 2020

DOI: 10.1002/pa.2193

J Public Affairs. 2021;21:e2193. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of10

https://doi.org/10.1002/pa.2193