Globalization: Between Optimism and Pessimism

Abstract

This article examines the globalization’s effect on the economy using a sample of thirty one developing countries over the period from 1981 to 2013. Globalization is captured by foreign direct investment, openness, and the KOF Globalization Index, measuring globalization along the economic, social, and political dimension. The Westerlund’s (Oxford Bulletin of Economics and Statistics 69:709-748, 2007) cointegration test suggests that the models are cointegrated. The long-run outputs from the autoregressive distributed lag model disclose the following results. First, foreign investment exerts a negative effect on industrialization captured by industry added value and industry employments, whereas trade openness enhances industrialization. Second, the effect of globalization on industrialization is not homogeneous across regions, African industries being those in which the effect is less important. Finally, market size and human capital skill have a negative and significant effect on industrialization, while innovation, infrastructures, and natural resource effects are positive and significant. The industrial effect of globalization is more important in Asia and Latin America than in Africa.