Globalisation and Economic Development Africa and Asia

By Dr Anthony Stokes Senior Lecturer in Economics Head of the School of Arts and Sciences (NSW and ACT) Australian Catholic University, Strathfield While there is a great deal of talk about Globalisation, it is often spoken of as if everyone understands what is meant by the term or, alternatively, as some giant mysterious force that controls the world. Globalisation can be as simple as having an international student attending school with you or surfing the internet to do your homework. Globalisation can be defined as the potential and actual movement among nations of: Trade Investment Technology Labour increasing the availability and a widening in the distribution of basic life sustaining goods such as food, shelter, health and protection. raising living standards, in addition to higher income, by providing improved education, employment opportunities, health care and self-esteem.

This can be achieved by expanding the range of economic and social choices available to individuals and nations, such as the right for women to work and to receive an education. While achieving higher economic growth is a step in this process, there is also a need in most cases for social and economic reforms. The main measure of living standards in the world is the human development index (HDI). The HDI covers three dimensions of human welfare: income, education and health. Its purpose is not to give a complete picture of human development but to provide a measure that goes beyond income. The HDI is a barometer for changes in human well-being and for comparing progress in different regions. Many Australians take their living standards for granted. The quality of life for the majority of Australians is quite high compared to other economies. The 2009 Human Development Report (HDR) (based on 2007 data) ranks Australia's quality of life as the second highest in the world, after Norway. The main factors that give Australia such a high ranking are our high life expectancy of 81 years and the amount of education we receive, (where Australia is ranked first in the world). Our economic growth as measured by Gross Domestic Product per capita is ranked 22nd in the world.

Finance and

In looking at the impact of globalisation on economic development in Africa and Asia, this article will be mainly concerned with the impact of trade and investment.

The process of globalisation is forging deeper interconnections between countries. In economic terms the space between people and countries is shrinking rapidly, as trade, technology and investment link all countries in a web of interdependence. In human development terms the space between countries is marked by deep and, in some cases, widening inequalities in income and life chances.

STUDENT ACTIVITIES

1. What do you understand the term globalisation to mean? 2. Provide examples of the operation of the process of globalisation within our region. 3. Discussion activity. Use the article, and your own knowledge, to identify some of the outcomes of globalisation. Refer to both positive and negative outcomes, with reference to specific countries where possible. 4. Find definitions for the following terms: Standard of living Quality of life Purchasing power parity Gross domestic product per capita

Measures of Economic Development

It is important to understand the nature of economic development and how it can be measured. Economic development is the physical situation and the state of mind whereby a society through some combination of social, economic and institutional processes secures the means to obtain a better life. This better life includes:

These three criteria are used to measure quality of life as it is believed that they will reflect a country's overall standard of living. Education is seen as a source of productivity and growth and a high education ranking is considered as an indicator of opportunity for the people in a country. In some countries, such as Niger, in Africa, less than 30 per cent of children finish primary school and the rate for females is below 15 per cent. Life expectancy also reflects your living standards. Countries with low living standards tend to have short life expectancies. For example the life expectancy in Afghanistan and Zambia is only 44 years. A long life expectancy usually reflects good food, health and general living standards.

The GDP per capita is measured in terms of purchasing power parity (PPP). This tells you how much people living in a country can buy with their money compared to someone in a different country. So a high GDP per capita (PPP) means that the average person's ability to buy goods and services is high compared to
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the average person in a country with a low GDP per capita. For example Australia's GDP per capita (PPP) was $35,000 US in 2007 compared to only $298 US in the Congo and $341 US in Burundi.

Over the last decade the HDI has been rising across all developing regions, though at variable rates and with the obvious exception of Africa. Figure 1 shows the HDI rankings from 1990 to 2007 of four African countries where development has been inconsistent (Botswana) or gone backwards (South Africa, Swaziland and Zambia). In comparison Figure 2 displays the rising Human Development Index levels of three Asian countries (Bangladesh, China and India) that have benefited from globalisation.

internal strife or severe economic changes but these have usually recovered once a period of stability has been established and maintained, such as in Burundi and Rwanda in Africa. In southern Africa the HIV/AIDS epidemic is affecting not only life expectancy, but also education and economic growth. HDI values began to decline in the mid 1990s in this group of countries. They are still falling in both South Africa and Swaziland and have barely turned the corner in Lesotho and Namibia. There are signs of recovery in Botswana and Zambia, although the HDI value is still well below earlier levels. The drop in HDI values for these countries is almost entirely explained by the sharp decline in life expectancy. In contrast, a number of countries are in the process of recovering from reversals. These countries include the postconflict countries in sub-Saharan Africa (for example, the Central African Republic, Cote d'Ivoire and Liberia).

STUDENT ACTIVITIES

5. Explain the difference between economic growth and economic development. 6. Why is the Human Development Index a better indicator of development than income measures such as GDP or GDP per capita? 7. Where does Australia rank under the HDI measure? 8. Explain the apparent disparity between our HDI ranking and our ranking on the basis of GDP per capita. 9. How has the process of globalization impacted on the HDI rankings of developing countries over the past decade? Refer to Figures 1 and 2 in your answer.

The Impact of Poverty

Figure 1: Human Development Index of Selected African Countries (19902007)

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A child born in the top 20 countries can expect to live to at least 80 years, but if she or he happens to be born in one of the bottom 20 countries, on average life expectancy is only 49 years. In countries with the highest life expectancies a child born today can expect to live twice as long as a child born in Swaziland or Zambia, the countries at the bottom of the world's life expectancy ranking. So while overall the opening up of global markets and opportunities through globalization are raising living standards overall, there are many who are missing out. The poorest 20 per cent of the world's people, roughly corresponding to the population living on less than $1 a day, account for 1.5 per cent of world income. The poorest 40 per cent, corresponding to the $2 a day poverty threshold, account for five per cent of world income. More than 40 per cent of the world's population constitutes, in effect, a global underclass, faced daily with the reality or the threat of extreme poverty. (HDR 2009)
Figure 2: Human Development Index of Selected Asian
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Source: Human Development Report, 2009 http://hdr.undp.org/

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STUDENT ACTIVITIES

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10. a. Identify the reasons for the reversals in HDI in some African nations. b. What could halt the decline? Cite an example. 11. Examine the link between life expectancy and the level of national income. Include reference to specific countries in your answer. 12. a. Explain the correlation between income levels and literacy levels. b. How do literacy levels impact on the productivity of labour? c. What is the link between productivity levels and wage levels?

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Source: Human Development Report, 2009 http://hdr.undp.org/

Countries (19902007)

The Impact of HIV/AIDS

There are several countries in southern Africa where major reversals in human development are still occurring, largely as a result of HIV/AIDS. Over the years, other countries have also experienced setbacks in particular as a result of conflict,
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If we compare the quality of life in Australia with our Asian neighbours, we find that inhabitants of East Asia and the Pacific have a life expectancy of 72 years and South Asia have a life expectancy of 64 years. Income levels are also lower with an average GDP per capita (PPP) of $5700 US in East Asia and the Pacific and $2900 US in South Asia. Literacy rates are

also much lower in these regions with 93 per cent in East Asia and the Pacific and 64 per cent in South Asia, compared to 100 per cent in Australia. It is important to note that a person is measured as literate if they are over 15 years old and have completed Year 6 at school.

have the highest economic growth rates. Some countries are highly dependent on export earnings. For example, Singapore's export earnings are growing at more than double their national GDP. This, however makes them very vulnerable to trade shocks. Figures 35 show that regions such as the developing Asian economies that have had trade growth averaging around 12 per cent per annum in the last two decades have also had GDP growth of over 10 per cent per annum. The African region as a whole has had export growth of around five per cent and GDP growth of six per cent. The sub-Saharan region has had similar

The Role of Exports in Growth

There is a close relationship between the level of exports and the rate of economic growth in countries throughout the world. The countries and regions with the highest ratios of their exports compared to Gross Domestic Products (GDP) also

Figure 3: The Level of Economic Growth and Export Growth in Developing Asia
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Figure 4: The Level of Economic Growth and Export Growth in Africa

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Figure 5: The Level of Economic Growth and Export Growth in Sub-Saharan Africa
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growth rates to the rest of Africa with exports at five per cent and GDP of six per cent. One major difference in the exports in the two major regions is that the African economies are much more dependent on a few commodities and are therefore more affected by fluctuating commodity prices. This has been especially so in Nigeria, Algeria and Libya with most export income coming from oil. Likewise Zambia is highly dependent on copper exports, Chad on cotton and Uganda on Coffee. The developing economies in Asia are mainly expanding their manufacturing sectors.

STUDENT ACTIVITIES

13. Use the Circular Flow of Income model to illustrate the relationship between exports and national income. 14. Use statistics from the article to explain why developing economies in Asia appear to be more globalised than those in Africa. 15. Examine Figures 3, 4 and 5 and comment on the similarities and differences in the path of GDP growth. Refer to the pace of growth and the levels of volatility.

providing opportunities for profit. These emerging markets also have growing export markets so the investment is further expanding exports and as a result economic growth. The African countries have the least investment, generally a narrow export base and low export growth. The narrow export base and low levels of investment are preventing the African economies from gaining the full benefits of globalization. While rising commodity prices up till 2008 did lead to rising levels of Foreign Investment into most of the regions of Africa, the sharp decline in commodity prices and the slowdown in global economic growth in the second half of 2008 reversed the trend as TNCs cancelled or postponed new projects in the wake of the Global Financial Crisis.

Conclusion

The Role of International Investment

International Investment is also an important source of growth and development in the global economy. International Investment relates to investment by transnational corporations (TNCs) such as Microsoft, Shell Oil and Nike. It is also known as International Direct Investment (IDI). There are approximately 77,000 TNCs with over 770,000 foreign subsidiaries operating throughout the world. These corporations set up their businesses in foreign countries and inject investment, technology and job opportunities into the economies. They also provide valuable foreign exchange for the economies.
Figure 6: Foreign Direct Investment Inflows by Region 20062009
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Globalisation has brought export growth and increased economic growth to many areas of the world in recent decades. This has largely lead to improved standards of living for many people especially in developing Asia. The situation is mixed in Africa with some countries improving and others going backward. The long term economic growth and development path for many of the African economies will be one of increased exports and investment. The way to gain increased investment is for these nations to widen their export base away from primarily commodities into manufacturing and service industries. While rising commodity prices did assist the African economies in the middle of the first decade of the 21st century for long term development the answer lies in the development of manufacturing and service industries.

STUDENT ACTIVITIES

(Billions of dollars)
Developing countries
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16. How does the pattern of global investment help to explain why some regions are growing and developing faster than others. Use examples from the article to justify your answer. 17. Why do TNCs keep moving their operations from one developing economy to another? 18. Identify the costs and benefits of foreign investment: a. for the TNC b. for the developing economy 19. What does the term 'narrow export base' mean? 20. How does a narrow export base impact on a nations' trade performance?

References
Developed economies Africa Latin America and the Caribbean South, East and SouthEast Asia and Oceania West Asia South-East Europe and CIS Memorandum LDCs

Source: UNCTAD, 2010

In recent years the areas of greatest new investment have been into the emerging markets in Asia, South America and the countries of the former USSR. As can be seen from Figure 6 relatively little foreign investment is going into Africa and the least developed countries in the Sub-Saharan region. This movement into the growth regions has occurred due to their relatively low wage rates and their growing economies

International Monetary Fund (1999-2009), World Economic Outlook, available at http://www.imf.org/ Stokes, A. (2009), The Global Financial Crisis, available at http://homepages. ihug.com.au/~gep/economics.htm Stokes, A. and S. Wright (2009), Globalisation and the Global Financial Crisis, available at http://homepages.ihug.com.au/~gep/economics.htm The United Nations Conference on Trade and Development (UNCTAD) (2009), Assessing the Impact of the Current Financial and Economic Crisis on Global FDI Flows, available at http://www.unctad.org/en/docs// diaeia20093_en.pdf The United Nations Conference on Trade and Development (UNCTAD) (2010), World Investment Report 2009, available at http://www.unctad.org/en/docs/ wir2009pt1_en.pdf United Nations Development Program (UNDP) (2010), Human Development Report, 2009, available at http://hdr.undp.org/

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