Abstract
In this paper, we examined the effect of globalization on economic growth of 25 selected African countries for the period 1991 to 2017. The index of globalization utilized was the Konjunkturforschungsstelle (KOF) Index of Globalization that takes into consideration the economic, social, and political dimensions of globalization. The study also examined the effect of globalization on unemployment in Africa. The study employed the panel unit root test, cointegration test, ARDL vector error correction mechanism (VECM), and Granger Causality test techniques. The panel unit root test reported a mixed order of integration necessitating the use of the cointegration test. The Pedroni cointegration test and the Fisher-ADF test revealed the presence of a long run relationship between globalization and economic growth in Africa. Based on the VECM, it was observed that globalization exerts a positive and significant effect on economic growth in the long run but a negative and insignificant effect in the short run. Also, globalization exerted a positive and significant effect on unemployment in the long run while in the short run, the effect was negative and significant. The Dumitrescu Hurlin Panel Causality Tests revealed the existence of a bi-directional relationship between globalization and economic growth in Africa. The policy implication of the paper is that African countries should realize the long run importance of globalization as a powerful force that drives a modern economy hence, coherent policies should be developed and geared towards managing the excesses of globalization so as to be moving along with the ever evolving world. Keywords: Economic Globalization, Political Globalization, Foreign Direct Investment, Financial Liberalization, Panel Regression, Social Globalization DOI: 10.7176/JEP/11-24-05 Publication date: December 31 st 2020
Highlights
A cross-cultural environment is characterized by globalization in both economic, political, and social spheres
Where Δ is the first difference operator; φi,j (j, k = 1, 2, ..., N) represents the fixed country effect; i ( i = 1, ..., m) is lag length determined by the Schwarz information Criterion (SIC); Xi,t is the vector of regressors; ECMi,t – 1 is the estimated lagged error correction mechanism (ECM) derived from the long run cointegrating relationship; λi is the adjustment coefficient; and μi,t is the disturbance term, which is assumed to be normally distributed with a zero mean and a constant variance
This has been the central view of some policy makers in developing countries thereby painting a negative effect of globalization on economic growth of developing countries
Summary
A cross-cultural environment is characterized by globalization in both economic, political, and social spheres. Empirical Literature Dreher (2006) examined whether globalization affect economic growth based on the economic, social and political dimensions. Bhaskara and Krishna (2011) investigated the effect of the three dimensions of globalization (political, economic, and social) on economic growth of 21 low-income African countries between 1992 to 2010 using the panel data approach. Kilic (2015) examined the effect of the three dimensions of globalization – economic, social and political – on the economic growth of 74 developing countries for the period 1981 to 2011. The results showed that political globalization exerts a negative and significant effect on economic growth in upper middle income countries while economic and social globalization had an insignificant effect on economic growth. Based on the empirical literature, it is observed that majority of the studies reported a positive and significant effect of globalization on economic growth. The study will examine the effect of globalization on inequality (unemployment) in Africa along with determining the causal relationship between globalization and economic growth
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