The literature on globalization is vast and rapidly growing. Some of the most influential definitions of globalization have been offered by D. Harvey, The Condition of Postmodernity (Oxford: Blackwell, 1989); A. Giddens, The Consequences of Modernity (London: Polity Press, 1990); D. Held and A. McGrew, D. Goldblatt and J. Perraton (Eds), Global Transformations (Stanford, CA: Stanford University Press, 1999); R. Robertson, Globalization (London: Sage Publications, 1992); J.H. Mittelman, The Globalization Syndrome (Princeton, NJ: Princeton University Press, 2000); M. Albrow, The Global Age (Stanford, CA: Stanford University Press, 1997); M. Waters, Globalization (London: Routledge, 2001); and J.A. Scholte, Globalization (New York: St. Martin‘s Press, 2000)10.
The modern literature on endogenous growth provides tools and models that are useful for elucidating some of the mechanisms linking international integration with long-run economic performance; there has been voluminous work, which highlights the causality between trade openness and GDP growth. Jin (2000)11 asserted that the elimination of trade barriers assist to stabilise the economic growth rate by improving efficiency and return economies. Moreover, trade liberalisations can improve indigenous technology which will lead to more efficient production function, and hence productivity will rise. Levine and Renelt (1992) described the relationship between GDP growth and trade openness by emphasising that the trade liberalisations may offer a greater access to capital goods. Sukar and Ramakrishna (2002) stated that external sector openness reduces the hindrances to international trade and such countries can experience competitively higher GDP growth rate. It is commonly believed that an open trade regime is imperative for economic development.
Up until the mid 1980s, studies of growth focused primarily on the accumulation of physical capital. But, capital accumulation at a rate faster than the rate of population growth is likely to meet diminishing returns that can drive the marginal product of capital below a threshold at which the incentives for ongoing investment vanish. This observation led Romer (1990), Lucas (1988), Aghion and Howitt (1992), Grossman and Helpman (1991a) and others to focus instead on the accumulation of knowledge, be it embodied in textbooks and firms as ―technology‖ or in people as ―human capital.‖ Knowledge is different from physical capital inasmuch as it is often non-rivalrous; its use by one person or firm in some application does not preclude its simultaneous or subsequent use by others. The non-rivalrous nature of knowledge suggests increasing returns when output is related to all tangible and intangible inputs, which eliminates the inevitability of diminishing returns to the accumulation of some inputs relative to others
The new models12 of knowledge accumulation highlight several potential links between international integration and growth. Research has focused on how the international exchange of goods and ideas affects the incentives for knowledge acquisition and on the efficacy of inventiveness and diffusion. Several mechanisms feature prominently in the literature. First, integration of peoples and cultures facilitates the flow of knowledge across national borders. Foreign ideas may be useful for inventing new products, for improving existing products, or for producing goods at lower cost. Second, integration of product markets via international trade affords those who invent or improve products a greater potential market on which to reap returns even as it subjects them to additional competition from foreign rivals. The incentives for innovation may intensify or diminish with integration, depending on whether the scale effect or the competition effect is more powerful. Third, the integration of world markets has general equilibrium implications for input prices and relative output prices. These price changes affect the cost of innovation as well as the relative attractiveness of alternative directions for industrial research. Finally, international interactions affect not only the incentives for creation of new knowledge, but also those for technological diffusion, with analogous implications for productivity growth. Many authors have examined how one or more of these mechanisms operates in some specific economic environment. Taken together, the literature offers many theoretical insights. Some progress has also been made on the empirical side, although data and methodological impediments have left assessment and measurement lagging behind.
The effects of globalization on growth have also been frequently analyzed with these measures. Until most recently, however, most studies examined them employing cross sections only. For example, Chanda (2001) uses an index of capital account openness to show that more developing countries have suffered from globalization than not, while Rodrik (1998) as well as Alesina et al. (1994) found no effect of capital account openness on economic growth. With respect to foreign direct investment (FDI) there is evidence of a positive growth-effect in countries which are sufficiently rich (Blomström et al. 1992) and a negative one in low income countries (Garrett 2001). Among others, Dollar (1992) analyzed the relationship between economic performance and openness to trade, Frankel and Romer (1996) those between growth and actual flows. Their results show that both openness to trade and actual trade flows are robustly related to growth. All of these studies present, however, only cross sectional estimates. Moreover, they do not adequately control for endogeneity. Their results might therefore reflect unobserved characteristics which do not vary over time instead of being the consequences of globalization or might reflect reverse causality. Some recent studies use panel data to examine the relationship between some dimensions of globalization and growth. Among them, Dollar and Kraay (2001) found that an increase in trade flows and foreign direct investment resulted in higher growth rates. Greenaway et al. (1999) also report a strong relationship between trade and growth. With respect to FDI, Borensztein et al. (1998) provide Edison et al. (2002) summarize the literature on capital account liberalization and economic performance. 2 Studies examining the effects of foreign direct investment on countries‘ growth rates have been summarized by Durham (2000). evidence of a positive growth-effect – given a minimum threshold stock of human capital. Carkovic and Levine (2002), to the contrary, do not find a robust influence of foreign direct investment on growth. A detailed analysis of the impact of several indicators of financial integration and growth is provided by Edison et al. (2002a). Their results show that no robust relationship exists. While those studies provide very detailed analysis of individual sub-dimensions of globalization, none of them examines the consequences of globalization on economic growth in greater detail.
Theoretical and empirical studies have confirmed the relationship between the country‘s openness to trade and the higher growth rates and strong tendency towards economic convergence, with the countries with lower per capita income levels growing more rapidly than countries with higher per capita income level (Sachs and Warner 1995, 8–12). Greater exposure to global opportunity costs, arising from trade policy reforms, would force continuing efficiency in the domestic market as well as in external markets (Kaplinsky 1998). Particularly in a small open economy, country‘s national welfare is theoretically highest with free trade as under perfect competition a small, price-taking country will gain by abolishing the tariffs, whereas any type of intervention by the government reduces the national welfare. Free trade is considered as the optimal policy for small economies with many trading partners, as the increase of imports has both an impact on the domestic price level and on the production volume in domestic sectors competing with imported goods, which contributes to the reallocation of available resources in the most productive sectors13. The resources will not be used to produce goods that could be imported at a lower price. Trade liberation also increases the productivity by providing less expensive or higher quality imported intermediate goods and technology, as well as increases the variety of goods (Dornbusch 1992). From the early 2000s the academic debates have become more diversified, arguing that methodological problems with the empirical strategies employed in the earlier research leave the results open to diverse interpretations, that open trade policies are significantly associated with higher economic growth (Rodriguez and Rodrik 1999). The direct effects of the country‘s openness to trade as well as the causality (i.e. is economic growth induced by more trade or vice versa) remain subjects for dispute too. The role of the country‘s openness to trade on the economic growth should not be underestimated and should be looked along with other determinants of growth. Also, systematic criticism has been made on (global) liberal trade policy, e.g. Reinert (2004), Reinert and Reinert (2011), and Chang (2002), and on the effect of the Washington consensus and the IMF free trade policies in Latin America and Africa, where authors refer that liberal trade policy has reduced the wealth, or at least diminished the growth rates when compared to the protectionist ‗bad policy‘ years, of several countries. Mercantilism as a wider economic concept and protectionism as an actual practical tool are main alternatives to liberal trade model.
To measure globalization, most of these studies employed proxies like trade and capital flows or openness to these flows. Using these proxies, Beer and Boswell (2001) examined the consequences of globalization on inequality14. Li and Reuveny (2003) analyzed their effects on democracy. As Heinemann (2000) shows, more globalized countries have lower increases in government outlays and taxes. Vaubel (1999) found them to have lower government consumption.
Although theoretical literature often feels apprehensive about the protectionism, in recent history waves of interventionist and protectionist measures have occurred across the countries, imposing barriers to imports from other countries, controls on capital movement, etc. The trends of protectionism stem from the concepts of mercantilism and economic nationalism, stipulating that the wealth of a country should be measured by its currency reserves, stock of precious metals and a political intervention in economic affairs is necessary to maximize that stock. Thus, the gains from international trade rise solely from exporting and country‘s commercial policy should be based on extensive government regulation of international trade and creating conditions in the domestic economy that enable country to prevail over other countries in a contest for export supremacy (Irwin 1991; Rankin 2011). Early ‗balance of trade‘ argument was strongly related to the view that ‗one man‘s gain must be another man‘s loss‘ (Finkelstein 2000 in Reinert and Reinert 2011, 13). The more recent concepts – neo-mercantilism and transnational mercantilism respectively from the early 20th century and the early 2000s – have widened the scope of mercantilism, stressing the importance of promoting economic growth by expanding exports, seeking for a balance of trade surplus and increasing the level of government foreign reserves, to achieve social or political objectives (Cesaratto 2010; Reinert and Reinert 2011). Neo-mercantilist countries encourage state promotion of sectors related to the production of goods which will be exported abroad to ensure that these companies will be competitive internationally15 and to decrease the foreign competition in the local market, promote large companies to compete with international industries, as well as manipulate monetary policy for the purpose to increase the competitiveness of local companies in international markets. The views that in a global general equilibrium, if some countries increase net export, some other countries must increase their net imports, have been outlined (Stiglitz 2012), stressing that countries with persistent trade deficits might face difficulties to finance the deficit as well as high levels of net imports weaken aggregate demand which might lead to the fiscal deficits. The logic of ‗net importers versus net exporters‘ has been outlined as applying to the EU trade policy (Papadimitriou and Wray 2011, 3). Managing Global Transitions Baltic Pathways from Liberal Trade Model to Neo-Mercantilism. At the same time, the effects of trade openness on budget balance are unclear. For example, according to Combes and Saadi-Sedik (2006, 3): while in theory, the net effect of trade openness on budget balance is ambiguous, empirically trade openness increases country‘s exposure to external shocks regardless of whether it is related to the natural openness, which is based on structural determinants of trade openness, e.g. the size of the country and its geographical characteristics; or to trade-policy openness, which is determined by decision makers. Additionally, trade openness affects budget balance directly, and here the effects of natural openness and trade-policy induced openness go in opposite directions: contrary to natural openness, trade-policy induced openness improves budget balances. [. . .] Governments, including for developing countries, may often resist liberalizing their trade regimes, arguing that their budget situation is already difficult and reducing tariffs will lead to larger budget deficits. Even if trade openness increases a country‘s exposure to external shocks and thereby adversely affects its budget balances, an outward looking policy strategy should lead to an overall strengthening of its budget balances. One can conclude, in the early mercantilist views balance of trade-argument was based on the zero-sum game approach. Thus, according to the mercantilist views the gains from international trade will result from exporting, in generalized terms the effects to the deficit countries as well as surplus countries should be analysed, especially in an economic bloc without the absence of a mechanism redistributing surpluses. The systematic effects of modern mercantilism and related problems to both sides of partnership have become visible during the on-going Euro zone crisis, especially related to the German-Greek trade partnership (Varoufakis 2011).
The effects reported might therefore appear only because other important aspects of globalization16 are omitted from the regressions. Most dimensions of globalization are strongly related to each other, so including them separately in a regression induces collinearity problems. Excluding those dimensions which are not the primary focus of the analysis – the method preferred in the literature – can, however, severely bias the coefficients estimated. Moreover, it is not obvious that all dimensions of globalization affect economic performance in the same direction. Since the overall effects of globalization are what matters, the lack of an overall measure and an analysis of its relationship with growth is a serious omission. The only study trying to measure overall globalization is A.T. Kearney/Foreign Policy Magazine (2002). They calculated a globalization ranking using various subgroups. Their ranking is, however, only available for three years. Moreover, important dimensions of globalization are omitted. The measure can therefore not be used in an empirical investigation.
Some scholar‘s attempts to identify the impact of openness on growth from cross country evidence at the macroeconomic level17. The final verdict may have to wait for further work using alternative datasets, variables, instruments, and empirical specifications. But the available body of empirical work shows that, once earlier methodological problems such as endogenous and omitted variable bias are addressed, there is no further evidence of a significant causal connection between openness and growth. The results might seem disappointing. After all, they fail to provide an answer to the question that motivated the literature in the first place. However, we next argue that there is in fact something important to learn from this literature. We learn that the question: ―Does trade openness promote growth?‖ does not have a simple and unconditional answer. As formulated…, may be this is not the question we should be asking, we should look for a more specific questions. For others, the core benefit of globalization is comparative advantage – that is, the ability of one country to produce goods or services at a lower opportunity cost than other countries. While the idea seems simple on the surface, it quickly becomes counterintuitive when examined deeper. The theory suggests that two countries capable of producing two commodities at different costs can benefit the most by exporting the good where the comparative advantage exists. For example, a developing may have a comparable advantage in producing cement and the United States may have a comparative advantage in producing semiconductors. While the U.S. may be able to produce cement more efficiently than the developing country, the U.S. would still be better off focusing on semiconductors because of its comparative advantage. This is why globalization is powerful as a driver of global consumption between countries of all capabilities.
Empirical evidence suggests that there is a positive growth effect in countries that are sufficiently rich when it comes to globalization. For investors and economies, globalization also provides the opportunity to reduce volatility on output and consumption, since products and services can be imported or exported with greater ease.
Most of the empirical studies that examine the effects of globalization on economic growth are done after 200618. The main reason for that, most of the studies used the globalization index which is prepared by Dreher (2006) (Some of them used financial integration, liberalizing, trade and financial receptivity variants, representing globalization). When surveying the literature that analyses the globalization‘s effects on economic growth, studies that are done after 2006 are taken into account. Dreher (2006) analyzed the relation between globalization and economic growth with panel data analysis technique by using the data of 123 countries from years 1970 to 2000. He found out that globalization affects the economic growth in a positive way. Afzal (2007) analyzed the globalization‘s effects on economic growth with an error-correction model by using the Pakistan‘s data from years 1960 to 2006. He used trade receptivity and financial integration variants, representing globalization. He arrived at a conclusion of the powerful connection between economic growth and trade gap and financial integration and he also found out that this connection leads to a development on economic growth in long terms. Shaikh and Shah (2008) analyzed the globalization‘s effects on Pakistan‘s economy with the help of Computable General Equilibrium Model. Results of the analysis show that globalization affects Pakistan‘s macro economy performance in a positive way and leads to a fast economic growth. Chang and Lee (2010) analyzed the connection between general globalization index and its components, which are economic, social and political globalization indexes, and the economic growth of 23 OECD countries, whose data is collected between years 1970 and 2006, with the help of cointegration analysis. The result of the analysis show that there is a weak connection between variants and causality in short terms but in long terms there is a one way connection from general, economic and social globalization to economic growth. Polasek and Sellner (2011) analyzed globalization‘s effects on the regional growth of 27 European Union (EU-27) countries, data of which is collected between the years 2001 and 2006, by using the Spatial Chow-Lin Procedure, which is formed by writers. Polasek and Sellner (2011) found out that globalization, thanks to the trade gap and direct foreign investment, affects many region‘s economic growth in a positive way. Rao (2011) analyzed the connection between globalization and economic growth for Singapore, Malaysia, Thailand, India and Philippines in the extent of Slow growth model (1956). According to the results of the research; as the globalization grows in these countries, the growth percentages of stabilized status goes higher too. Cuneyt Kilic Mutascu and Fleischer (2011) analyzed the connection between globalization and economic growth in Romania between the years 1972 and 2006 by using the Unrestricted Vector Autoregressive Model (UVAR). Mutascu and Fleischer found out that in middle and long terms globalization would maximize the economic growth. Acikgoz and Mert (2011) analyzed the causality connection between economic, social and political globalization and economic growth in Turkey between the years 1970 and 2008 by using the Auto-Regressive Distributes Lag (ARDL), which is defined by Pesaran (2011). They found out that in Turkey; there isn‘t a causality connection from economic globalization to economic growth but there is a causality connection from social and political globalization to the growth. Leitão (2012) analyzed the connection between economic growth, globalization and trade in the U.S.A between the years 1995 and 2008 by using the panel data technique. He found out that globalization increases or provokes the economic growth. Ray (2012) analyzed if there is a causality connection between globalization and economic growth in India by using the Granger causality test. He found out that there is a mutual causality connection between globalization and economic growth. Umaru (2013) analyzed globalization‘s effects on Nigeria‘s economic performance between the years 1962 and 2009 by using the Annual Average Growth Rate (AAGR) technique. Umaru (2013) found out that globalization effects petrol, manufacturing industry and solid mineral sectors in negative ways, but it affects the agriculture, transportation and communication sectors in positive ways. Meraj (2013)19 analyzed the connection between the trade gap and economic growth in Bangladesh between the years 1871 and 2005 by using Auto-Regressive Distributed Lag (ARDL) and Granger causality test. Meraj (2013) found out that globalization has positive effects on developing countries‘ (like Bangladesh‘s) trade and economic growth. Ying (2014) analyzed the connection between social and political globalization and economic growth in ASEAN countries between the years 1970 and 2008 by using Fully Modified Ordinary Least Squares (FMOLS) technique. Ying (2014) found out that economic globalization affects economic growth in a positive way but social and political globalization affects it in negative ways.
One can say that the term globalization is considered as one of the defining trends of the 21st century. Rapid international development drives growth in the increasingly dense web of connections between developed and developing countries around the world. Advances and cost reductions in communications technology and transportation have made it ever easier to collaborate with associates in other countries and remote locations .Trade is international since the flint stone trade of Neanderthal human and globalization is a subject of history since first ages. It existed when the Silk Road started in China and reached to the frontier of the Persian Empire and enlarged towards the Roman Empire and during the Roman Empire, the Persian Empire and the Dynasty of China. Another example is the Golden Age of Islam20: Early global economy created by Muslim merchants and explorers that ended up with the globalization of crops, commerce, knowledge and technology in the Old World-wide and the times that more integration was achieved along the Silk Road during the Mongol Empire. With the accession of Portuguese and Spanish Empires to every corner of the world in the 16th and 17th centuries after they had reached India, global integration continued through the enlargement of European trade. During their dynasties Roman and Ottoman Empires developed ―world systems‖ consistent with their hegemony in the ―discovered‖ world and Pax Romana and Pax Ottoman constituted examples of globalization that ―effects and compasses the whole world‖ in 19th century with the Pax Britannica known as the world order developed by Britain. The development in the automation network with the Industrial Revolution accelerated the globalization process. Two significant world wars and then the competition between the United States of America (USA) and the Union of Soviet Socialist Republics (USSR) carried humanity into a very dangerous point. Consequently, the reality that instead of ―power‖ ―norm‖ should operate in order to alleviate the tension between these two blocs loomed large.
The main idea of the Conference on Security and Co-Operation in Europe (CSCE) was the originating point of the appearance of this norm. With the Final Act adopted at the Helsinki Conference which is the first step of the conference and hence second wave of globalization a general agreement on the subjects of security, economy, trade, energy and humanity between the two blocs was achieved. Thereafter, Summits of Belgrade 1977-78, Madrid 1980-83, Vienna 1986-89 and Paris 1990 were held. New rings were added with the Summits of Copenhagen 1990, Moscow Meeting on Human Dimension 1991, Prague-Vienna Confidence Building Measures 1992 and Helsinki. Finally significant contributions were done to the formation of a smoother world in 200s in the ―democracy and human rights‖ framework with the come up of ―full respect for human rights‖ as a consequence of Lisbon 1996 and Istanbul 1999 Summits of the Organization for Security and Co-Operation in Europe (OSCE). In the USSR the Perestroika reforms were accepted by Gorbachev in 1985 which means the restructuring of the planned economy in order to modify it. Partial liberalization of the world of business was aimed. In this process Glasnost aimed to decrease the level of corruption in the public sector through openness and transparency. This background today resting in the dusty pages of history books in fact constitutes the infrastructure of immense contemporary changes.
Globalization: The vast term
Definition of Globalization
How are you doing to write your thesis, dissertation, or even your working paper right now? Are you on your laptop, or maybe a tablet or even your cell phone? When a company like Dell is building a computer, the computer may be assembled in India (a developing country), though certain complicated parts were built in China (a transitional country), while the research and development were done in the United States (as you probably know, a developed country). All this is possible due to globalization. One of the terms that is used by everyone regardless they are businessmen, politicians or academicians and whose meaning and nature are not settled is the term ―globalization‖. The origin of the word globalization is ―global‖. The word global may take different meanings in different languages. The most common meaning however is the 3D geometric figure. According to Meydan Larousse the term global means ―undertaken entirely‖. This is the meaning attributed to the word global by Western languages. Besides, the term means ―homogeneity‖ in French. Hence the term means both ―entirety‖ and ―homogeneity‖.
The American Defense Institute21 defines globalization as ―fast and continuous inter-border flow of goods, services, capital (or money), technology, ideas, information, cultures and nations‖. According to the Institute, through globalization an unprecedented integration among economies is occurring, an information reform is being experienced, and markets, corporations, organizations and governance are becoming more international.
Table des matières
Table of figures
Table of tables
III. Student Background
IV. Declaration by Student
1-2-Organization of the study
1-2-2-The significance of this study
1-5-Globalization: The vast term
1-5-1-Definition of Globalization
1-5-2-Globalization VS Globalism
1-5-3-Globalization: Is it a process, condition or ideology?
1-5-4-Stages of globalization
1-5-6- Globalization effects
1-5-7-Scale versus Competition
1-6-Globalization and International trade theories
1-7-Global trade structure
1-7-1-First phase (immobile factors of production)
1-7-2-Second phase (mobility of factors of production)
1-7-3-Third phase (global production networks)
1-7-4-Judging Globalization 2000 by the Standard of Perfect International Integration
1-8-The importance of economic growth
1-8-1- Liberalization as economic growth engine
1- 8-2- Export-led Growth
2-2-Algeria historical trend
2-3-Algeria at a glance
2-3-2-Algeria‘s Economy at present: an Overview
2-4-Algeria Trade Today
2-4-2- Camus and Trade
2-4-3-Learn from others experience
2-4-4-Algeria‘s Hydrocarbon Dependence
2-4-5-Algeria trade characteristic
2-4-6-Algeria has a diversified set of export partners
2-4-7 Algerian KOF
2-5-Algeria and the WTO
2-5-1-Growth was sustained in 2015 while inflation picked up
2-5-2-The overall budget deficit reached an all-time high of 16.4 percent of GDP
2-5-3-The real effective exchange rate depreciated but remains significantly overvalued
2-5-4-Broad money growth slowed, driven by a decline in net foreign assets
2-5-5-The banking sector remained well capitalized and profitable, but liquidity tightened
2-5-6- New constitution includes provisions to foster greater transparency, better governance, and a more market-based economy
2-6- Algeria`s Industry
2-6-1-The crucial role of agriculture in Algeria
2-6-3-Female Labor Force Participation
2-6-4-Algerian international tourism
2-7-Algeria foreign trade
2-7-3-China‘s Investment in Algeria
2-8-Algeria and Globalization
2-8-1-Globalization and Algerian culture
2-8-2-Openness To, and Restrictions Upon, Foreign Investment
2-8-3-The Obstacles of Globalization in Algeria
2-8-4-Globalization Drivers in Algeria
3-2-3-The objective of this study
3-2-4-Hypothesis of the study
3-3-1-Ordinary least square method (OLS)
3-3-2-The Stationary Test (Unit Root Test)
3-3-4-Homoscedasticity (equal variance) and Heteroscedasticity (unequal variance)
4.2 Unit Root Tests
4-3-Problem of multi-collinearity
4-5- Testing for cointegration
4-5-1 Test hypothesis
4-6- Engle-Granger Tests panel
4.6 Engel-Granger and ECM Test panel
4.6.2 Error Correction Model
4-7- Johansen-Juselius Test
4-8-Diagnostic test panel
4-9-Concluding remarks and interpretation