Three decades of globalisation: Which countries won, which lost?

• Date: 01 April 2020
• DOI: http://doi.org/10.1111/twec.12915
• Published date: 01 April 2020

1076

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World Econ. 2020;43:1076–1102.

wileyonlinelibrary.com/journal/twec

Received: 18 November 2019

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Accepted: 3 January 2020

DOI: 10.1111/twec.12915

ORIGINAL ARTICLE

Three decades of globalisation: Which countries

won, which lost?

Bernhard G.Gunter

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BritniWilcher

Economics Department, American University, Washington, District of Columbia

KEYWORDS

capital flows, economic integration, globalisation, marginalisation, trade

1

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INTRODUCTION

Though the term globalisation is used in many different contexts, this paper refers to globalisation

as a gradual integration of economies driven by new technologies, new economic relationships, and

national and international policies. This gradual integration is typically seen as a worldwide phenom-

enon. For example, McMillan and Rodrik (2011, p. 50) state: “Developing countries, almost without

exception, have become more integrated with the world economy since the early 1990s”. However,

as the brief review of the literature in the next section shows, there have been many studies that have

documented that some countries, especially low-income countries (LICs), have not been integrated.

As this paper shows, while some LICs continue to be marginalised, some have joined China and India

in being drivers of globalisation. On the other hand, there are now also some high-income countries

(HICs) that have been left out from the overall integration of the world economy.

Unlike more recent contributions identifying winners and losers based on income groups,1 this paper

looks at globalisation and marginalisation in terms of the country-specific evolution of (a) exports of

goods and services and (b) capital flows (measured by net inflows of foreign direct investment (FDI)).

Following a brief review of the literature (Section 2) and some empirical background on the evolution

of GDP per capita and GDP of 160 countries (Section 3), the fourth section examines the evolution of

exports and net FDI inflows in terms of levels as well as in terms of world shares from 1985 to 2015.

Furthermore, we examine the evolution of the exports-to-GDP ratios and ratios of net FDI inflows to

GDP for each country with such data from 1985 to 2015. The fifth section uses regression analysis to

1 For example, Milanovic (2016) identifies the winners and losers of globalisation mostly based on income groups. He shows

that the winners of globalisation are the top 1% of the world's earners but also new global middle class that has been propelled

by economic growth in countries such as India and China. The losers of globalisation are the world's poorest 5% and people

in the 75th to 90th percentile of the global income distribution, which represent a global upper middle class, including

especially the lower middle class of rich countries, who saw zero growth in their real income.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction

in any medium, provided the original work is properly cited.

© 2020 The Authors. The World Economy published by John Wiley & Sons Ltd

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GUNTER aNd WILCHER

shed more light on possible explanations for why some countries have been drivers of globalisation,

while others have been marginalised. The last section provides some conclusions.

2

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BRIEF REVIEW OF THE LITERATURE

Though trade has been considered an engine of growth since at least Adam Smith, there have been

doubts if all countries benefit from international trade. Given that the arguments and literature of trade

optimists are relatively well known,2 this literature review focuses on more critical contributions

about the benefits of trade, especially for the developing countries, using a historical perspective.

There is a long literature related to unequal economic relations between developing and industri-

alised countries dating back to the middle of the twentieth century grounded in so-called dependency

theory built on Marxist theories of exploitive imperialist relations between the European and the

non-European world. Building on a perceived unfair international order, a set of proposals was made

during the 1970s by various developing countries, which supported by the United Nations Conference

on Trade and Development (UNCTAD) led to a United Nations (1974) General Assembly Resolution

declaring the establishment of a New International Economic Order (NIEO).3

Examining the trade policies of the European Community (EC) towards the African, Caribbean and

Pacific (ACP) countries, Agarwal, Dippl, and Langhammer (1985) concluded that the trade margin-

alisation of the ACP countries has been due largely to the overall economic stagnation of many ACP

countries, specific barriers inhibiting ACP export performance, including droughts and desertification,

plant and animal diseases, high transportation costs, expensive and often inadequate telecommunica-

tions, as well as the impact of oil price increases. Following up on the evolution of EC-ACP trade,

Cosgrove (1994) concluded that additional factors for the trade marginalisation of ACP countries have

been the high incidence of HIV/AIDS in Africa as well as an erosion of specific trade preferences since

the mid-1980s.

Examining shares of world trade, investment and output, Collier (1995) shows that sub-Saharan

Africa was more marginalised in 1994 than at any time in the previous 50years. He examines four

possible explanations for this marginalisation: insufficient reform, insufficient scale, the high-risk

environment and weakness of agencies of restraint. Based on a 1994 survey of 150 firms, which had

either invested or were interested in investing in five African countries, Collier concludes that the

most serious deterrent for investment was political and policy uncertainty, followed by fears of policy

reversal, fear of expropriation (including failure of the legal system to protect private agents from

government) and the risk of breach of contract (which is in effect a failure of the judiciary to create an

environment in which contracts are respected). Ng and Yeats (1996) as well as Low, Olarreaga, and

Suarez (1998) conclude that the source of many countries' marginalisation in world trade is due to

these countries' protectionist trade policies.

Most of the literature from the early 2000s provides a set of more nuanced and sophisticated expla-

nation for marginalisation. Robyn (2001) concludes that marginalisation in world trade has been prod-

ded by insufficient industrialisation. Focusing on Africa, Hagen (2002) concludes that the history and

geography of Africa constitute impediments to economic development, that in many African states

growth-retarding policies have been pursued and that there are intimate links between the region's

2 See, for example, Dollar and Kraay (2004).

3 See Gilman (2015) for a recent review of the New International Economic Order (NIEO).