How Does Globalisation Affect Regional Inequality within A Developing Country? Evidence from China

Developing countries are increasingly concerned about effects of globalisation on regional inequality. This paper develops an empirical method for decomposing the contributions of two major driving forces of globalisation, foreign trade and foreign direct investment (FDI), on regional inequality and applies it to China. Even after controlling for many other factors, globalisation is still found to be an important factor contributing to the widening regional inequality. The paper ends by investigating the role of factor market segmentations in aggravating the distributional effect of changing regional comparative advantages in the process of globalisation.     

Linkages between Globalisation,Carbon Dioxide Emissions and Governance in Sub-Saharan Africa

ABSTRACT

This study investigates linkages between environmental degradation, globalisation and governance in 44 countries in Sub-Saharan Africa using data for the period 2000–2012. The Generalised Method of Moments is employed as empirical strategy. Environmental degradation is proxied by carbon dioxide emissions whereas globalisation is appreciated in terms of trade openness and net foreign direct investment inflows. Bundled and unbundled governance indicators are used, namely: political governance (consisting of political stability/no violence and “voice & accountability”), economic governance (encompassing government effectiveness and regulation quality), institutional governance (entailing corruption-control and the rule of law) and general governance (a composite measurement of political governance, economic governance and institutional governance). The following main finding is established. Trade openness modulates carbon dioxide emissions to have positive net effects on political stability, economic governance, the rule of law and general governance.     

Economic development and the administration and regulation of transport

This paper examines the impact on total factor productivity (TFP) growth in the South of North-South and South-South trade-related technology diffusion and of foreign direct investment (FDI). North-South and South-South trade-related research and development (R&D) stocks are constructed based on industry-specific R&D in the North, North-South and South-South trade patterns, and input-output relations in the South. The main findings are: 1. Both North-South and South-South trade-related R&D have a positive impact on TFP growth in the South; 2. FDI has a positive, though smaller, impact on TFP growth; 3. The impact on TFP growth of trade-related technology diffusion increases with the level of education in the case of North-South trade but not in the case of South-South trade.     

Signalling Demand for Foreign Investment: Postsocialist Countries in the Global Bilateral Investment Treaties Network

A unique dataset on bilateral investment treaties provides a novel source of evidence on the link between neoliberal globalisation and market transition. We argue that postsocialist countries of Europe and Eurasia, more than other developing regions in the world, signed such treaties to signal demand for foreign investment in the spirit of neoliberalism. We calculated the density of the whole BIT network since its inception in 1959 to 2009, and density and centrality of different regional blocks within it, and found strong support for our argument. Yet, even if bilateral investment treaties are designed to promote foreign direct investment, dynamic panel regression models show that signing them does not automatically translate into foreign direct investment inflows for postsocialist European and Eurasian countries in the 1990–2010 period.     

Attempting developmental regionalism through afta : The domestic sources of regional governance

The asean Free Trade Area ( afta ) has conventionally been explained as a project of open regionalism adopted by the asean member governments to attract foreign direct investment to the region through the 'carrot' of the single regional market. Yet, when the same governments incorporated an investment liberalisation component programme within the afta project in 1998, they opted to accord full national treatment and market access privileges to foreign (non- asean ) investors at least 10 years later than to domestic or asean national investors. Although member governments removed this particular discriminatory clause in September 2001, the fact that a distinction between foreign and domestic investors was adopted and maintained for a three-year period is puzzling given afta 's acknowledged role as a magnet for foreign investment. Although afta is clearly a response to the pressures of globalisation, the available theoretical models of the relationship between globalisation and regionalism are unable to account for this empirical anomaly because they do not make a distinction between foreign-owned and domestic-owned capital. This paper advances the notion of 'developmental regionalism' as a way to incorporate domestic-owned capital in analysing the globalisation-regionalism relationship, which allows for a more robust explanation of the empirical puzzle outlined above.     

The Institutional Foundations of Inequality and Growth

After a decade of research, the effect of inequality on long-run economic growth remains unresolved, in part because researchers have treated omitted variable bias as an estimation problem rather than a deeper question of causality. In this article we argue that the key omitted variable is the quality of economic institutions. Using both cross-country and panel data specifications, we find no direct effect of inequality on growth in the long-run. Rather, the protection of property rights simultaneously raises growth rates and reduces income inequality. We interpret these findings as evidence that insecure property rights disproportionately disadvantage the poor.     

Quantitative cross-national studies of economic development: A comparison of the economics and sociology literatures

For more than two decades, economists and sociologists have pursued parallel cross-national quantitative investigations of the determinants of economic development. These investigations have proceeded in mutual ignorance despite the often large overlap in statistical methods and data employed. Apparently contradictory findings have resulted, especially regarding the impacts of international trade and foreign direct investment. We find that there are two factors that account for these inconsistent results. One key factor is the use of different variables to measure international trade and investment, the choice of which is in turn driven by underlying differences in theoretical motivations. A second important difference involves sociologists’ greater preoccupation with more complex multivariate models versus economists’ greater willingness to focus on individual variables in multivariate regressions while viewing others as “controls.” A major finding of our survey is that when thesame variables are used, the results of economists and sociologists tend to be consistent, rather than contradictory (as might have occurred, for example, because of the use of different samples of countries or time periods, or the use of other variables included in the regression equations). We also consider some studies whose purviews go beyond economic growth to consider factors such as income inequality, physical quality of life, demographic change, and basic needs provisioning. Angela Martin Crowly is at the Department of Sociology, University of California, Irvine, Irvine, California 92717. James Rauch is at the department of Economics, University of California, San Diego, La Jolla, California 92093. Susanna Seagrave is at the U.S. General Accounting Office, Washington, D.C. 20548. David A. Smith is at the Department of Sociology, University of California, Irvine, Irvine, California 92717.     

How EU Integration and Legacies Mattered for Foreign Direct Investment into Central and Eastern Europe

This essay uses the case of foreign direct investment (FDI) in Central and Eastern Europe to stipulate how European Union (EU) integration affected the economic globalisation of the post-socialist region. Existing studies argue that expectations of impending EU membership had a direct effect on raising FDI inflows because they reduced perceived investment risks for potential investors. In contrast, I show that the EU accession process worked through an indirect effect on FDI: it influenced post-socialist states' efforts to promote FDI as a desirable strategy of economic development and the behaviour of firms. These state efforts, in turn, increased FDI inflows, net of conventional risk and return factors. Further analyses indicate that decisions about state FDI-promotion have been influenced not only by EU conditionality but also, and importantly, by particular legacies, namely the countries' initial choice of privatisation strategies, extent of reform during socialism and history of state sovereignty. Overall, the results suggest that EU integration and legacies of the past shape both the structural and the ideational context for domestic decision-making elites in Central and Eastern Europe, and may act not only as constraints but also as enabling conditions facilitating the global economic integration of the region.     

Hispanics and foreign policy

Difficulties abound in any attempt to generalize about the role of ethnicity in foreign policy-making in the United States. First, some ethnic groups have become more iduential than others. Second, those that have succeeded have seen their influence rise and fall, depending on multiple factors and circumstances. Still other groups, despite their increasing numbers, have yet to attempt to influence foreign policy.

The Hispanic experience in iniluencing foreign policy belongs to the last category. Several factors account for the limited Hispanic influence in foreign policy, such as their fragmentation and their lack of clout in domestic issues. Other factors are more specifically political and have to do with the fact that active involvement by Hispanics in politics has yet to come.

The end of the Cold War has displaced security issues from the top of the foreign policy agenda of the United States. The overarching rationale granted by anti-communism is no longer available.

Simultaneously, the Summit of the Americas, of December 1994, has recognized that economic issues, such as trade and investment, have gained ascendancy in the Hemispheric agenda.

The primacy of economics in Hemispheric relations furnishes an opportunity for Hispanic businesses to participate more actively in trade and investment relations in the Hemisphere.

However, as revealed by the debate on the North American Free Trade Agreement (NAFTA), trade and investment have proven to be very divisive issues for Hispanics. Consequently, the Hispanic business community, particularly those small and medium size companies that are already active in international trade and investment, will have to act deliberately to benefit fiom the opportunities that are emerging.     

Book reviews

Economic relations between China and Latin America have grown rapidly over the past decade. This paper documents the growth of trade, foreign direct investment (fdi) and other financial flows between China and Latin America and identifies the interests of China in the region as a source of raw materials, a market for exports of manufactured goods and an area of diplomatic competition with Taiwan. It points to the asymmetric nature of the relationship in terms of the relative importance of bilateral trade to each partner, the composition of trade flows, and the balance of fdi flows. It shows that these show many of the characteristics of centre–periphery relations. However, China is far from becoming a new hegemonic power in Latin America and the latter's relations with the USA and Europe continue to be more significant than those with China.     

Decent work and indecent trade agendas: the European Union and ACP countries

The European Commission has promised to promote decent work in the African, Caribbean, and Pacific (ACP) countries through pro-poor direct investment and livelihood-creating trade deals. Aligning with the discourse of the International Labour Organisation, the European Commission seeks to achieve ‘fair globalisation’ in which economic growth is translated into decent jobs. Applying a moral economy perspective, however, the article argues that there is a disjuncture between the norms espoused under the Decent Work Agenda and the tangible implications of European interventions in ACP economies. Specifically, Economic Partnership Agreements will have deleterious consequences for the lives of many poorer producers and workers in ACP countries. The provision of Aid for Trade for decent work, moreover, may not deliver meaningful decent work opportunities in ACP countries. In this analysis, the article explores the emergent normativity-outcomes gap in this sphere of European Union external relations.     

Openness and Growth: Re-Examining Foreign Direct Investment,Trade and Output Linkages in Latin America

The openness–growth connection is still an open question in the empirical literature. Although some studies have found that openness has a positive impact on economic performance, others have seriously questioned the significance of this result. The main point that we try to emphasise in this paper is that openness involves more than just trade liberalisation. The increasing importance of international capital flows and especially foreign direct investment (FDI) seems to be another relevant component of outward oriented policies. Therefore, by using quarterly data from the late seventies to 2000, we investigate the effects of liberalisation in Mexico, Brazil and Argentina by taking into account trade and FDI growth links. The results suggest that it is important to consider both exports and FDI to ascertain the benefits associated to the outward oriented strategies followed by these countries.     

Distributive Effects of Regional Trade Agreements on the ‘Small Trading Partners’: Mercosur and the Case of Uruguay and Paraguay

It is disputed whether trade liberalisation processes are sufficient for reducing poverty and inequality. We explore how ‘gains from trade’ have been distributed in the two minor trade partners of Mercosur, Uruguay and Paraguay, by analysing the impact of trade liberalisation on poverty and inequality through two main transmission channels: prices and income. In the case of Uruguay, trade liberalisation favoured a reduction in poverty indicators but had an almost zero effect on income inequality. In the case of Paraguay, trade liberalisation had a markedly negative impact in terms of poverty yet income distribution improved. We conclude that in the case of Mercosur, the effect of trade on poverty and income inequality varies per country and per region. In particular, we conclude that trade integration policies cannot be regarded as ‘poverty-alleviating’ per se.     

Foreign Direct Investment Spillovers and Productivity Growth in Indonesian Garment and Electronics Manufacturing

Inflows of foreign direct investment generate externalities that spill over to domestic firms and raise their productivity. This article examines the extent of spillover effects of foreign direct investment for firms in the highly disaggregated garment (ISIC 3221) and electronics industries (ISIC 3832) in Indonesia. Both are export-intensive industries, but differ greatly in technological sophistication and labour intensity. Changes in both the productivity level and rate of growth in each industry are decomposed into the effects of technological change, technical efficiency change and scale efficiency change and then the impacts of spillovers on each component and on total productivity are estimated. The findings suggest that foreign direct investment generates a positive effect on total productivity change, technical efficiency change, technological change, and scale efficiency change in the garment industry. In contrast, foreign direct investment contributes significantly negatively to total productivity, technological change and scale efficiency change, but has no significant effect on technical efficiency change in the electronics industry.     

Sociological explanations of economic growth

Even if questions of how resources aredistributed within and between societies are our main concern, we must continue to grapple with the issue of the causes of economic growth because economic growth and level of development continue to be among the most important causes of inequality, poverty, unemployment, and the quality of life. This paper’s dependent variable is the economic growth rate of 55 less developed countries (LDCs) during two time periods—1970–78 and 1965–84. The causal model consists of control variables—level of development and domestic investment in 1965—and a variety of independent variables drawn from major sociological theories of economic growth published during the last three decades. Multiple regression analysis shows that, net of the effects of the two control variables, the variables that have the strongest effect on economic growth rates are: (1) direct foreign investment, which has a negative effect; (2) the proportion of the population in military service; and (3) the primary school enrollment ratio, both of which have positive effects of economic, growth. On the other hand, variables drawn from some theories receive no empirical suport. The mass media of communications, ethno-linguistic heterogeneity, democracy and human rights, income inequality, and state-centric theory’s key variable—state strength—all fail to show any significant impact on economic growth rates when the control variables and the significant independent variables are held constant. The theoretical implications of these findings are discussed.     

The Politics of Telecommunications Regulation: State–Industry Alliance Favouring Foreign Investment in India

This paper explores the political economy of three significant policy decisions of the Congress–United Progressive Alliance government between November 2005 and February 2006. These decisions improved the regulatory incentives for the smaller and efficient firms in the Indian GSM industry, which were heavily dependent on foreign investment for their expansion. India's telecommunications sector became more attractive to foreign investors as a result of these regulatory changes. This was a notable departure from the past when government policy had favoured large domestic investors using CDMA technology who were not dependent on foreign capital. A globalisation friendly policy change occurred after a Centre-Left United Progressive Alliance coalition came to power. The paper argues that these decisions, which promoted both competition and foreign investment, occurred due to the increased sensitivity of the Department of Telecommunications towards the needs of the relatively smaller GSM service providers, driven by considerations of efficiency. They were not driven by a crisis of private investment, foreign pressure, or stealth. The shift occurred in normal times when the Department of Telecommunications under a persistent ministerial stewardship took on a regulator, which was less interested in engineering this shift. This globalisation-friendly strategy depended to a large extent on the particular industrial sub-sector that the ruling party or coalition supported for spreading telecommunications in India.     

The GATT agreement on trade related investment measures: Implications for developing countries and their relationship with transnational corporations

This article addresses three issues. First, it argues that the use of trade related investment measures (TRIMs) by LDCs can only be analysed in the context of their dealings with transnational corporations (TNCs). Second, it considers the applicability of existing GATT rules to TRIMs and shows that they are inadequate and can pose difficulties for LDCs seeking foreign direct investment by TNCs. Third, it suggests a framework for regulating TRIMs as one element of host‐TNC relations. The article concludes with proposals for enhancing the capacity of LDCs in their dealings with TNCs.     

China's provincial diplomacy to Africa: applications to health cooperation

There is a prevailing view of China as a unitary actor in its relationships with African countries. This view is incomplete: on the contrary, China is a collection of provinces, autonomous regions and municipalities with myriad strategic ties to African countries, with decentralization shaping the current form of Chinese government and its level of efficiency. In this paper, factors have been explored for why Chinese provinces have played a role in foreign cooperation in health of African countries, in addition to trade and foreign direct investment. Incentives and disincentives for Chinese provinces to engage internationally in foreign cooperation and health assistance have been identified. The concept of paradiplomacy for health has been presented and this typology has been applied to the example of Chinese medical teams. Finally, we draw linkages between China and other members of Brazil, Russia, India, China, and South Africa.     

The globaliser dragon: how is China changing economic globalisation?

There are many studies on the effects of both economic globalisation and the rise of China. These core issues of the contemporary international agenda entail major economic, military, environmental, social and cultural transformations in most nations. While there is also an abundant literature on how globalisation supported the rise of China, there are scarce publications on how China became one of the primary drivers of globalisation. This article assumes that understanding the power of globalisation over countries is as crucial as assessing the power of certain countries over the process. In this sense, it uses the recently created ‘theory of globalisers’ to analyse how is China transforming contemporary economic globalisation. The conclusion is that China became an ‘economic globaliser’ in the twenty-first century. As the largest exporter, the second largest importer, the third largest provider of foreign direct investments, and a major supplier of high-tech goods, the Asian giant is a vital partner for several economies in different continents. In this context, Beijing’s globalisation strategy aims at both securing the benefits of globalisation and reforming the international economic order, but without a revolutionary stance.     

On the apparent benefits of higher productivity: An arithmetical illustration a comment

During the 1980s, like many other developing countries Nepal attempted actively to attract direct foreign investment. This article reports the results of a survey of the foreign‐owned firms in operation at the end of the 1980s. The motives of firms for their investment decisions in Nepal are summarised. The impact of foreign investment is assessed quantitatively using both financial and economic cost‐benefit criteria. In general, it appears that foreign investment has been beneficial to both the foreign investors and the national economy. Foreign investors from India have played a particularly important role. However, much of the national returns from foreign investment is derived from the payment of taxes, so that an excessively generous policy of tax incentives may not maximise national returns.