Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries

Abstract

This paper assesses the impacts of globalisation on the cross‐country comparative patterns of growth and development. In the theoretical section, some of the key linkages between growth, development and globalisation are explored including the positive and negative impacts of globalisation and the constraints on effective development in a globalised world. Some of the key factors emphasised include trade and capital flows as well as computerisation. These issues are then analysed empirically using σ and club convergence models, estimated using panel techniques. The empirical evidence presented indicates that globalisation has been associated with increasing trade and financial flows to less developed countries. It has also coincided with increasing penetration of the Internet suggesting that increases in informational flows have complemented economic and financial linkages, but the empirical evidence also shows that the current era of globalisation has not been associated with convergence in economic outcomes; instead less‐developed countries have suffered from increases in international income inequality. In the final section, conclusions and policy implications are presented including a discussion of how international and national development policies could be designed properly to ameliorate tendencies towards growing international disparities in economic growth.