Advertisement

Globalization and Inclusive Growth: Can They Go Hand in Hand in Developing Countries?

  • Rupa Duttagupta
  • Sandra Lizarazo Ruiz
  • Angelica Martinez Leyva
  • Marina Mendes Tavares
Conference paper

Abstract

Low-income developing countries (LIDC) have experienced a rapid increase in economic integration since the early 1990s. This chapter builds a dynamic general equilibrium model that captures important structural characteristics of LIDCs—a large agriculture sector, productivity gaps, and limited financial inclusion—to identify the channels through which integration can affect inclusive growth. The model is used to quantify the growth and distributional effects of the economic and financial liberalization in Ghana in the early 1990s. The results suggest that liberalization contributed significantly to Ghana’s growth take-off and poverty alleviation in 1990–2000. However, with limited labor mobility and persistent skill gaps between sectors, the benefits of integration, particularly from the financial liberalization channel, are concentrated in households with more human capital and access to finance, resulting in higher income inequality.

Notes

Acknowledgements

This research work is part of a project on Macroeconomic Research on Low-Income Countries supported by the U.K.’s Department for International Development (DFID). The views expressed here are the views of the authors and do not necessarily represent those of the IMF, its Executive Board, IMF Management, or DFID. We thank Annalisa Fedelino, Davide Furceri, Leandro Medina, Chris Papageorgiou, and participants of the XXIX Villa Mondragone International Economic Seminar (June 2017) for helpful comments.

References

  1. Ang, J. B. (2008). A survey of recent developments in the literature of finance and growth. Journal of Economic Surveys, 22(3), 536–576.CrossRefGoogle Scholar
  2. Adamopoulos, T., & Restuccia, D. (2014). The size distribution of farms and international productivity differences. American Economic Review, 104(6), 1667–1697.CrossRefGoogle Scholar
  3. Autor, D. H., Dorn, D., Hanson, G. H., & Song, J. (2014). Trade adjustment: Worker-level evidence. The Quarterly Journal of Economics, 129(4), 1799–1860.CrossRefGoogle Scholar
  4. Aiyagari, S. R. (1994). Uninsured idiosyncratic risk and aggregate saving. The Quarterly Journal of Economics, 109(3), 659–684.CrossRefGoogle Scholar
  5. Ben Naceur, S., & Zhang, R. (2016). Financial development, inequality and poverty: Some international evidence (IMF Working Paper No. 16/32).CrossRefGoogle Scholar
  6. Bumann, S., & Lensink, R. (2016). Capital account liberalization and income inequality. Journal of International Money and Finance, 61, 143–162.CrossRefGoogle Scholar
  7. Broner, F. A., & Ventura, J. (2010). Rethinking the effects of financial liberalization (No. w16640). National Bureau of Economic Research.Google Scholar
  8. Dollar, D. (1992). Outward-oriented developing economies really do grow more rapidly: evidence from 95 LDCs, 1976–1985. Economic Development and Cultural Change, 40(3), 523–544.CrossRefGoogle Scholar
  9. Dollar, D., & Kraay, A. (2001). Trade, growth, and poverty. World Bank, Development Research Group, Macroeconomics and Growth.Google Scholar
  10. Dollar, D., & Kraay, A. (2016). Institutions, trade, and growth: Revisiting the evidence (World Bank Policy Research Working Paper No. 3004).Google Scholar
  11. Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091–1110.CrossRefGoogle Scholar
  12. Duarte, M., & Restuccia, D. (2010). The role of the structural transformation in aggregate productivity. The Quarterly Journal of Economics, 125(1), 129–173.CrossRefGoogle Scholar
  13. Edison, H. J., Levine, R., Ricci, L., & Sløk, T. (2002). International financial integration and economic growth. Journal of International Money and Finance, 21(6), 749–776.CrossRefGoogle Scholar
  14. Fabrizio, S., Furceri, D., Garcia-Verdu, R., Bin G. L., Lizarazo, S., Mendes Tavares, M., Narita, F., & Peralta-Alva, A. (2017). Macro-structural policies and income inequality in low-income developing countries. IMF Staff Discussion Note, No 17/01.Google Scholar
  15. Fajgelbaum, P. D., & Khandelwal, A. K. (2016). Measuring the unequal gains from trade. The Quarterly Journal of Economics, 131(3), 1113–1180.CrossRefGoogle Scholar
  16. Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379–399.CrossRefGoogle Scholar
  17. Furceri, D. (2015). Capital account liberalization and inequality (IMF Working Paper No. 15/243).CrossRefGoogle Scholar
  18. Ghosh, A. R., Ostry, J. D., & Qureshi, M. S. (2016). When do capital inflow surges end in tears? American Economic Review, 106(5), 581–585.CrossRefGoogle Scholar
  19. Heathcote, J. (2005). Fiscal policy with heterogeneous agents and incomplete markets. The Review of Economic Studies, 72(1), 161–188.CrossRefGoogle Scholar
  20. Huggett, M. (1993). The risk-free rate in heterogeneous-agent incomplete-insurance economies. Journal of Economic Dynamics and Control, 17(5–6), 953–969.CrossRefGoogle Scholar
  21. International Monetary Fund. (2014). Macroeconomic developments in low-income developing countries (IMF Policy Paper. October 2014).Google Scholar
  22. International Monetary Fund. (2015a). IMF Selected Issues Paper 15/236. The Federal Democratic Republic of Ethiopia, November 2015.Google Scholar
  23. International Monetary Fund. (2015b). IMF Selected Issues Paper 15/346. Malawi, December 2015b.Google Scholar
  24. Jahan, M. S., & Wang, D. (2017). Capital account openness in low-income developing countries: Evidence from a new database (IMF Working Paper No. 16/252).Google Scholar
  25. Kaminsky, G. L., & Schmukler, S. L. (2008). Short-run pain, long-run gain: Financial liberalization and stock market cycles. Review of Finance, 12(2), 253–292.CrossRefGoogle Scholar
  26. Klein, M. W., & Olivei, G. P. (2008). Capital account liberalization, financial depth, and economic growth. Journal of International Money and Finance, 27(6), 861–875.CrossRefGoogle Scholar
  27. Lang, V. F., & Tavares, M. M. (Forthcoming). The distribution of gains from globalization (IMF Working Paper).Google Scholar
  28. Mendes-Tavares, M., Peralta-Alva, A. & Telyukova, I. A. (2014). Commodity price booms: Macroeconomic and distributional implications (IMF Technical Report).Google Scholar
  29. Pereira Leite, S., Pellechio, A., Zanforlin, L., Begashaw, G., Fabrizio, S., & Harnack, J. (1999). Ghana: Economic development in a democratic environment (IMF Occasional Paper No. 199).Google Scholar
  30. Pierce, J. R., & Schott, P. K. (2016). The surprisingly swift decline of US manufacturing employment. American Economic Review, 106(7), 1632–1662.CrossRefGoogle Scholar
  31. Rodriguez, F., & Rodrik, D. (2000). Trade policy and economic growth: A skeptic’s guide to the cross-national evidence. NBER Macroeconomics Annual, 15, 261–325.CrossRefGoogle Scholar
  32. Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2), 131–165.CrossRefGoogle Scholar
  33. Rogerson, R. (2008). Structural transformation and the deterioration of European labor market outcomes. Journal of Political Economy, 116(2), 235–259.CrossRefGoogle Scholar
  34. Rostow, W. W. (1956). The take-off into self-sustained growth. The Economic Journal, 66(261), 25–48.CrossRefGoogle Scholar
  35. Rostow, W. W. (1959). The stages of economic growth. The Economic History Review, 12(1), 1–16.CrossRefGoogle Scholar
  36. Wacziarg, R., & Wallack, J. S. (2004). Trade liberalization and intersectoral labor movements. Journal of international Economics, 64(2), 411–439.CrossRefGoogle Scholar
  37. Wacziarg, R., & Welch, K. H. (2008). Trade liberalization and growth: New evidence. The World Bank Economic Review, 22(2), 187–231.CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Rupa Duttagupta
    • 1
  • Sandra Lizarazo Ruiz
    • 1
  • Angelica Martinez Leyva
    • 1
  • Marina Mendes Tavares
    • 1
  1. 1.International Monetary FundWashington D.C.USA

Personalised recommendations