You are on page 1of 5

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 • increasing the availability and a widening in the distribution
often spoken of as if everyone understands what is meant by of basic life sustaining goods such as food, shelter, health
the term or, alternatively, as some giant mysterious force that and protection.
controls the world. Globalisation can be as simple as having • raising living standards, in addition to higher income, by
an international student attending school with you or surfing providing improved education, employment opportunities,
the internet to do your homework. health care and self-esteem.
Globalisation can be defined as the potential and actual This can be achieved by expanding the range of economic and
movement among nations of: social choices available to individuals and nations, such as the
• Trade right for women to work and to receive an education. While
• Investment achieving higher economic growth is a step in this process, there
• Technology is also a need in most cases for social and economic reforms.
• Finance and The main measure of living standards in the world is the human
development index (HDI). The HDI covers three dimensions of
• Labour
human welfare: income, education and health. Its purpose is not
In looking at the impact of globalisation on economic to give a complete picture of human development but to provide
development in Africa and Asia, this article will be mainly a measure that goes beyond income. The HDI is a barometer
concerned with the impact of trade and investment. for changes in human well-being and for comparing progress in
The process of globalisation is forging deeper interconnections different regions.
between countries. In economic terms the space between Many Australians take their living standards for granted. The
people and countries is shrinking rapidly, as trade, technology quality of life for the majority of Australians is quite high
and investment link all countries in a web of interdependence. compared to other economies. The 2009 Human Development
In human development terms the space between countries is Report (HDR) (based on 2007 data) ranks Australia's quality of
marked by deep and, in some cases, widening inequalities in life as the second highest in the world, after Norway. The main
income and life chances. factors that give Australia such a high ranking are our high life
expectancy of 81 years and the amount of education we receive,
STUDENT ACTIVITIES
(where Australia is ranked first in the world). Our economic
1. What do you understand the term ‘globalisation’ to mean?
growth as measured by Gross Domestic Product per capita is
2. Provide examples of the operation of the process of globalisation
ranked 22nd in the world.
within our region.
3. Discussion activity. Use the article, and your own knowledge, These three criteria are used to measure quality of life as it is
to identify some of the outcomes of globalisation. Refer to believed that they will reflect a country's overall standard of
both positive and negative outcomes, with reference to specific living. Education is seen as a source of productivity and growth
countries where possible. and a high education ranking is considered as an indicator of
4. Find definitions for the following terms: opportunity for the people in a country. In some countries,
•  Standard of living such as Niger, in Africa, less than 30 per cent of children finish
•  Quality of life primary school and the rate for females is below 15 per cent.
•  Purchasing power parity
Life expectancy also reflects your living standards. Countries
•  Gross domestic product per capita
with low living standards tend to have short life expectancies.
For example the life expectancy in Afghanistan and Zambia is
Measures of Economic Development only 44 years. A long life expectancy usually reflects good food,
It is important to understand the nature of economic health and general living standards.
development and how it can be measured. Economic The GDP per capita is measured in terms of purchasing power
development is the physical situation and the state of mind parity (PPP). This tells you how much people living in a country
whereby a society through some combination of social, can buy with their money compared to someone in a different
economic and institutional processes secures the means to country. So a high GDP per capita (PPP) means that the average
obtain a better life. This better life includes: person's ability to buy goods and services is high compared to

~2~
the average person in a country with a low GDP per capita. internal strife or severe economic changes – but
For example Australia's GDP per capita (PPP) was $35,000 US these have usually recovered once a period of stability has
in 2007 compared to only $298 US in the Congo and $341 US been established and maintained, such as in Burundi and
in Burundi. Rwanda in Africa. In southern Africa the HIV/AIDS epidemic
Over the last decade the HDI has been rising across all is affecting not only life expectancy, but also education and
developing regions, though at variable rates and with the economic growth. HDI values began to decline in the mid
obvious exception of Africa. Figure 1 shows the HDI rankings 1990s in this group of countries. They are still falling in
from 1990 to 2007 of four African countries where development both South Africa and Swaziland and have barely turned the
has been inconsistent (Botswana) or gone backwards (South corner in Lesotho and Namibia. There are signs of recovery
Africa, Swaziland and Zambia). In comparison Figure 2 in Botswana and Zambia, although the HDI value is still
displays the rising Human Development Index levels of three well below earlier levels. The drop in HDI values for these
Asian countries (Bangladesh, China and India) that have countries is almost entirely explained by the sharp decline
benefited from globalisation. in life expectancy.
In contrast, a number of countries are in the process of
STUDENT ACTIVITIES recovering from reversals. These countries include the post-
5. Explain the difference between economic growth and economic conflict countries in sub-Saharan Africa (for example, the
development. Central African Republic, Cote d'Ivoire and Liberia).
6. Why is the Human Development Index a better indicator
of development than income measures such as GDP or
GDP per capita? The Impact of Poverty
7. Where does Australia rank under the HDI measure? A child born in the top 20 countries can expect to live to at
8. Explain the apparent disparity between our HDI ranking and least 80 years, but if she or he happens to be born in one of the
our ranking on the basis of GDP per capita. bottom 20 countries, on average life expectancy is only
9. How has the process of globalization impacted on the HDI 49 years. In countries with the highest life expectancies a child
rankings of developing countries over the past decade? born today can expect to live twice as long as a child born in
Refer to Figures 1 and 2 in your answer.
Swaziland or Zambia, the countries at the bottom of the world's
life expectancy ranking.
Figure 1: Human Development Index of Selected African
Countries (1990–2007) So while overall the opening up of global markets and
0.8 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
0.7

0.6
population living on less than $1 a day, account for 1.5 per cent
0.5 of world income. The poorest 40 per cent, corresponding to
% 0.4
Botswana the $2 a day poverty threshold, account for five per cent of
South
Africa
Swaziland
world income. More than 40 per cent of the world's population
constitutes, in effect, a global underclass, faced daily with the
0.3
Zambia

0.2 reality or the threat of extreme poverty. (HDR 2009)


0.1
Figure 2: H
 uman Development Index of Selected Asian
0 0.9
1990 1995 2000 2005 2007

0.8
Years

Source: Human Development Report, 2009 http://hdr.undp.org/ 0.7

0.6

STUDENT ACTIVITIES %
0.5
China

10. a. Identify the reasons for the reversals in HDI in some African
0.4 India  

Banglades

nations. 0.3 h

b. What could halt the decline? Cite an example. 0.2

11. Examine the link between life expectancy and the level of national 0.1

income. Include reference to specific countries in your answer.


12. a. Explain the correlation between income levels and literacy
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

levels. Years

b.  How do literacy levels impact on the productivity of labour? Countries (1990–2007)
c. What is the link between productivity levels and wage levels? Source: Human Development Report, 2009 http://hdr.undp.org/

If we compare the quality of life in Australia with our Asian


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

~3~
also much lower in these regions with 93 per cent in East Asia have the highest economic growth rates. Some countries
and the Pacific and 64 per cent in South Asia, compared to are highly dependent on export earnings. For example,
100 per cent in Australia. It is important to note that a person Singapore's export earnings are growing at more than double
is measured as literate if they are over 15 years old and have their national GDP. This, however makes them very vulnerable
completed Year 6 at school. to trade shocks.
Figures 3–5 show that regions such as the developing Asian
The Role of Exports in Growth economies that have had trade growth averaging around 12
There is a close relationship between the level of exports and per cent per annum in the last two decades have also had GDP
the rate of economic growth in countries throughout the world. growth of over 10 per cent per annum. The African region as a
The countries and regions with the highest ratios of their whole has had export growth of around five per cent and GDP
exports compared to Gross Domestic Products (GDP) also growth of six per cent. The sub-Saharan region has had similar

Figure 3: T
 he Level of Economic Growth and Export Growth in Developing Asia
Developing Asia GDP and Export Growth

25

20

15

10
Asian export growth
%
Asian GDP growth
5

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
-5

-10
Years

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


African GDP and Export Growth

14

12

10

African GDP Growth


%4
African Export Growth

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-2

-4

-6
Years

Figure 5: The Level of Economic Growth and Export Growth in Sub-Saharan Africa
Sub Saharan Africa GDP and Export Growth

15

10

Export Growth
%
GDP Growth

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-5

-10
Years

Source: IMF, 2010

~4~
growth rates to the rest of Africa with exports at five per cent providing opportunities for profit. These emerging markets
and GDP of six per cent. One major difference in the exports also have growing export markets so the investment is
in the two major regions is that the African economies are further expanding exports and as a result economic growth.
much more dependent on a few commodities and are therefore The African countries have the least investment, generally a
more affected by fluctuating commodity prices. This has been narrow export base and low export growth. The narrow export
especially so in Nigeria, Algeria and Libya with most export base and low levels of investment are preventing the African
income coming from oil. Likewise Zambia is highly dependent economies from gaining the full benefits of globalization. While
on copper exports, Chad on cotton and Uganda on Coffee. rising commodity prices up till 2008 did lead to rising levels
The developing economies in Asia are mainly expanding their of Foreign Investment into most of the regions of Africa, the
manufacturing sectors. sharp decline in commodity prices and the slowdown in global
economic growth in the second half of 2008 reversed the trend
STUDENT ACTIVITIES as TNCs cancelled or postponed new projects in the wake of the
13. Use the Circular Flow of Income model to illustrate the Global Financial Crisis.
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 Conclusion
Africa. Globalisation has brought export growth and increased
15. Examine Figures 3, 4 and 5 and comment on the similarities and economic growth to many areas of the world in recent
differences in the path of GDP growth. Refer to the pace of decades. This has largely lead to improved standards of living
growth and the levels of volatility. 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
The Role of International Investment
development path for many of the African economies
International Investment is also an important source of will be one of increased exports and investment. The way
growth and development in the global economy. International to gain increased investment is for these nations to widen
Investment relates to investment by transnational corporations their export base away from primarily commodities into
(TNCs) such as Microsoft, Shell Oil and Nike. It is also manufacturing and service industries. While rising commodity
known as International Direct Investment (IDI). There are prices did assist the African economies in the middle of the
approximately 77,000 TNCs with over 770,000 foreign first decade of the 21st century for long term development the
subsidiaries operating throughout the world. These answer lies in the development of manufacturing and service
corporations set up their businesses in foreign countries and industries.
inject investment, technology and job opportunities into the
economies. They also provide valuable foreign exchange for STUDENT ACTIVITIES
the economies. 16. How does the pattern of global investment help to explain why
Figure 6: F
 oreign Direct Investment Inflows by Region some regions are growing and developing faster than others.
2006–2009 Use examples from the article to justify your answer.
17. Why do TNCs keep moving their operations from one developing
1 9 (Billions of dollars) economy to another?
97 962
18. Identify the costs and benefits of foreign investment:
Developing countries
2006 a. for the TNC
b. for the developing economy
2007
2008
2009:Q1
19. What does the term 'narrow export base' mean?
20. How does a narrow export base impact on a nations' trade
performance?

References
International Monetary Fund (1999-2009), World Economic Outlook, available
at http://www.imf.org/
Developed Africa Latin America South, East West Asia South-East Memorandum
economies and the and South- Europe LDCs Stokes, A. (2009), The Global Financial Crisis, available at http://homepages.
Caribbean East Asia and CIS ihug.com.au/~gep/economics.htm
and Oceania
Stokes, A. and S. Wright (2009), Globalisation and the Global Financial Crisis,
Source: UNCTAD, 2010 available at http://homepages.ihug.com.au/~gep/economics.htm
The United Nations Conference on Trade and Development (UNCTAD)
In recent years the areas of greatest new investment have been (2009), Assessing the Impact of the Current Financial and Economic
into the emerging markets in Asia, South America and the Crisis on Global FDI Flows, available at http://www.unctad.org/en/docs//
diaeia20093_en.pdf
countries of the former USSR. As can be seen from Figure
The United Nations Conference on Trade and Development (UNCTAD) (2010),
6 relatively little foreign investment is going into Africa and World Investment Report 2009, available at http://www.unctad.org/en/docs/
the least developed countries in the Sub-Saharan region. wir2009pt1_en.pdf
This movement into the growth regions has occurred due to United Nations Development Program (UNDP) (2010), Human Development
Report, 2009, available at http://hdr.undp.org/
their relatively low wage rates and their growing economies

~5~
Copyright of Ecodate is the property of Warringal Publications and its content may not be copied or emailed to
multiple sites or posted to a listserv without the copyright holder's express written permission. However, users
may print, download, or email articles for individual use.