Globalisation and economic growth in Africa: New evidence from the past two decades

Abstract

Background: In the last two decades, the world experienced two overlapping global shocks – that is, the 2008–2009 financial crisis and the COVID-19 lockdowns – with severe social and economic consequences on African economies that have, once again, brought to the fore the intricate role that globalisation plays in economic growth because of grave risks that often accompany it.

Aim: We consider three research questions about globalisation: (i) does globalisation heighten economic growth? (ii) is there a statistically significant threshold level of globalisation above which globalisation affects growth differently than at lower levels? (iii) what factors moderate the globalisation-economic growth nexus?

Setting: A panel of 47 selected countries from Africa from 2001 to 2018 is under scrutiny.

Method: To begin, it applies an overlapping five-year moving average (MA) to smoothen the data. In addition, we employ the revised globalisation index and the two-step systems generalised method of the moment (GMM) in its empirical strategy.

Results: We find a largely insignificant relationship between globalisation and economic growth. We attribute these results to Africa’s infinitesimal share – less than 5% – in foreign direct investment (FDI) and global trade, acute infrastructure deficit and the lack of relevant skills that lead to productivity losses and weak performance within the international business ecosystem. We also find, among others, that globalisation is more effective in countries with more gross capital formation, higher population and urban growth rates.

Conclusion: For Africa to maximise its growth potential from globalisation, sound policies should be put in place to promote trade, FDI, domestic capital formation and urbanisation. We suggest that future studies investigate the long-run equilibrium relationship between globalisation and economic growth.