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Globalization and Africa: implications for human development

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  • Simplice A, Asongu

Abstract

Purpose – The purpose of this paper is to assess the effects of trade and financial globalization on human development in 52 African countries using updated data(1996-2010) and a new indicator of human development(adjusted for inequality). Design/methodology/approach – The estimation technique used is a Two-Stage-Least Squares Instrumental Variable methodology. Instruments include: income-levels, legal-origins and religious-dominations. The first-step consists of justifying the choice of the estimation technique with a Hausman-test for endogeneity. In the second-step, we verify that the instrumental variables are exogenous to the endogenous components of explaining variables(globalization dynamic channels) conditional on other covariates(control variables). In the third-step, the strength and validity of the instruments are assessed with the Cragg-Donald and Sargan overidentifying restrictions tests respectively. Robustness checks are ensured by: (1) use of alternative globalization indicators; (2) endogeneity based estimation ; and (3) adoption of two interchangeable sets of instruments. Findings – Findings broadly indicate that while trade globalization improves human development(consistent with the neoliberal theory), financial globalization has the opposite effect(in line with the hegemony thesis). Social implications – Capital accounts should be opened in tandem with financial and institutional development. The investment atmosphere needs improvement to curtail capital flight(about 39%). Other policy implications include: adoption of openness options in a selective and gradual manner, development of some industrial backbone for an import-substitution or export-led industry, emphasis on regional trade and building capacity, development of the agricultural sector with continuous government assistance, building of rural infrastructure, increasing adult literacy rate and developing human resources, fighting corruption and mitigating wastages in government expenditure. Originality/value – These findings are based on very recent data. Usage of the inequality adjusted human development index first published in 2010, corrects past works of the bulk of criticisms inherent in the first index.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36541.

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Date of creation: 09 Feb 2012
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Handle: RePEc:pra:mprapa:36541

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Keywords: Globalization; Human development; Africa;

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References

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  1. Beck, T.H.L. & Demirgüç-Kunt , A. & Levine, R., 2003. "Law and finance: Why does legal origin matter?," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3125511, Tilburg University.
  2. Hisako Kai & Shigeyuki Hamori, 2009. "Globalization, financial depth, and inequality in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 29(3), pages 2025-2037.
  3. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Working Papers, Research Seminar in International Economics, University of Michigan 468, Research Seminar in International Economics, University of Michigan.
  4. Asongu Simplice, 2010. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," Working Papers 10/001, African Governance and Development Institute., revised 18 Dec 2011.
  5. Simplice A. Asongu, 2012. "Law and Finance in Africa," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, ULB -- Universite Libre de Bruxelles, vol. 55(4), pages 385-408.
  6. Simplice A, Asongu, 2011. "Globalization, financial crisis and contagion: time-dynamic evidence from financial markets of developing countries," MPRA Paper 30120, University Library of Munich, Germany.
  7. Pan-Long Tsai, 1995. "Foreign direct investment and income inequality: Further evidence," World Development, Elsevier, Elsevier, vol. 23(3), pages 469-483, March.
  8. Asongu Simplice, 2011. "Financial Determinants of Human Development in Developing Countries," Working Papers 11/012, African Governance and Development Institute..
  9. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-12, C.V. Starr Center for Applied Economics, New York University.
  10. M. Sirgy & Dong-Jin Lee & Chad Miller & James Littlefield, 2004. "The Impact of Globalization on a Country's Quality of Life: Toward an Integrated Model," Social Indicators Research, Springer, Springer, vol. 68(3), pages 251-298, September.
  11. Asongu Simplice, 2011. "Law, finance, economic growth and welfare: why does legal origin matter?," Working Papers 11/007, African Governance and Development Institute..
  12. Simplice A., Asongu, 2011. "Finance and inequality: exploring pro-poor investment channels in Africa," MPRA Paper 34994, University Library of Munich, Germany.
  13. Rudiger Dornbusch, 1992. "The Case for Trade Liberalization in Developing Countries," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(1), pages 69-85, Winter.
  14. Simplice A., Simplice, 2011. "Why do French civil-law countries have higher levels of financial efficiency?," MPRA Paper 33950, University Library of Munich, Germany.
  15. Simplice A., Asongu, 2011. "Law, Finance and Investment: does legal origin matter?," MPRA Paper 34698, University Library of Munich, Germany.
  16. Basu, Parantap & Guariglia, Alessandra, 2007. "Foreign Direct Investment, inequality, and growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(4), pages 824-839, December.
  17. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3643, C.E.P.R. Discussion Papers.
  18. Bhagwati, Jagdish, 1990. "Departures from Multilateralism: Regionalism and Aggressive Unilateralism," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(403), pages 1304-17, December.
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Citations

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Cited by:
  1. Simplice A, Asongu, 2012. "Determinants of Health Professionals’ Migration in Africa," MPRA Paper 37632, University Library of Munich, Germany.
  2. Asongu Simplice, 2012. "Globalization, (fighting) corruption and development: how are these phenomena linearly and nonlinearly related in wealth effects?," Working Papers 12/024, African Governance and Development Institute..
  3. Asongu, Simplice A., 2013. "Inequality, poverty and quality of institutions: which freedom channels of globalization matter for Africa?," European Economic Letters, European Economics Letters Group, European Economics Letters Group, vol. 2(1), pages 24-31.
  4. Asongu, Simplice A, 2013. "Fighting African Capital Flight: Empirics on Benchmarking Policy Harmonization," MPRA Paper 48469, University Library of Munich, Germany.
  5. Asongu, Simplice A, 2013. "Consult your gods: the questionable economics of development assistance in Africa," MPRA Paper 48475, University Library of Munich, Germany.

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