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Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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How our interconnected world is changing

Globalization isn’t going away, but it is changing, according to recent research  from the McKinsey Global Institute (MGI). In this episode of The McKinsey Podcast , MGI director Olivia White speaks with global editorial director Lucia Rahilly about the flows of goods, knowledge, and labor that drive global integration—and about what reshaping these flows might mean for our interconnected future.

After, global brewer AB InBev has flourished in the throes of what its CFO Fernando Tennenbaum describes as the recent “twists and turns.” Find out how in this excerpt from “ How to thrive in a downturn: A CFO perspective ,” recorded in December 2022 as part of our McKinsey Live series. 1 Please note that market conditions may have changed since this interview was conducted in December 2022.

The McKinsey Podcast is cohosted by Roberta Fusaro and Lucia Rahilly.

This transcript has been edited for clarity and length.

Globalization is here to stay

Lucia Rahilly: Pundits and other public figures have wrongly predicted the demise of globalization for what seems like years. Now, given the war in Ukraine and other disruptions, many are once again sounding its death knell. What does this new MGI research  tell us about the fate of globalization? Is it really in retreat?

Olivia White: The flows of goods, the real tangible stuff, have leveled off after nearly 20-plus years of growing at twice the rate of GDP. But the flows of goods kept pace with GDP and even rose a little bit, surprisingly, in the past couple of years. Since GDP has been growing, that means actual ties have gotten stronger.

One of the most striking findings from this research was that flows representing knowledge and know-how, such as IP and data, and flows of services and international students have accelerated and are now growing faster than the flow of goods. Flows of data grew by more than 40 percent per annum over the past ten years.

Lucia Rahilly: Goods are a smaller share of total flows, a smaller share of economic output, than in the past. That doesn’t necessarily sound like a bad thing. Could it be a sign of progress?

Olivia White: The fact that certain goods are growing less quickly than other types of flows shows this shift in our economy and what’s most important to the way the economy functions. It comes on the back of a long history of different factors that influence growth and shifts in the way patterns work. What’s happening, in part, is that a variety of countries are producing more domestically—first and foremost China. That has been driving a lot of the flow down, if you take the longitudinal view, over the past ten years versus before.

The world remains interdependent

Lucia Rahilly: How interdependent would you say we are at this stage? Could you give us some examples of the ways we’re interconnected?

Olivia White: The top line is, every region in the world depends on another significant region for at least 25 percent of a flow it values most.

In general, regions that are manufacturing regions—Europe, Asia–Pacific, and China, if we look at it on its own because it’s such a large economy—depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals of different sorts. I’ll give you a few examples.

In general, regions that are manufacturing regions depend very strongly on the rest of the world for resources: food to some degree, but really energy and minerals. Olivia White

China imports over 25 percent of its minerals, from places as far-flung as Brazil, Chile, and South Africa. China imports energy, particularly in the form of oil from the Middle East and Russia. Europe is emblematic of these forms of dependency on energy. It was dependent on Russia for over 50 percent of its energy, but now that has drastically changed.

In some other regions in the world—places that are resource rich, like the Middle East, sub-Saharan Africa, and Latin America—those places are highly dependent on the rest of the world for their manufactured goods. Well over half the world’s population lives in those places. They import well over 50 percent of their electronics and similar amounts of their pharmaceuticals. They are highly dependent on other parts of the world for things that are really quite critical to development and for modern life.

North America is somewhat of a different story. We don’t have any single spot of quite as great a dependency, at least at the broad category level. We import close to 25 percent of what we use in net value terms across the spectrum, both of resources and of manufactured goods.

This doesn’t yet speak of data and IP, where, for example, the US and Europe are fairly significant producers/exporters. A country like China is a very large consumer of IP.

Lucia Rahilly: How interdependent are we in terms of the global workforce?

Olivia White: This is quite striking. We asked how many workers in regions outside North America serve North American demand. And we asked the same question for Europe. It turns out that 60 million people in regions outside North America serve North American demand, and in Europe the corresponding number is 50 million.

These numbers are very substantial versus the working populations in those countries. So when you consider how much of what North Americans or Europeans are consuming could be produced onshore, by onshore labor, the answer is not even remotely close to those sorts of numbers—at least given the means of production or the way services are delivered today and the role people play in that.

Lucia Rahilly: Let’s turn to some of the categories of flows that have increased in recent years. What’s driving growth in global flows now that the trade in goods has stabilized?

Olivia White: Flows linked to knowledge and know-how. Knowledge services that have historically grown more slowly than manufactured goods and resources, with increased global connection over time, have flipped over the past ten years.

Professional services, such as engineering services, are among those more traditional trade flows that have been growing fastest, at about 6 percent a year, versus resources, which have slowed to just around two percent. Anything that involves real know-how—engineering, but also providing, say, call center support—is in that category.

The flows of IP are growing even faster. Now, IP is tricky because accounting for it is a very tricky thing to do. But it roughly looks at flows of the fun stuff. In the report we talk about Squid Game , but IP also includes movies, streaming platforms, music, and any sort of cultural elements that we consume.

It’s also important to consider flows of patents and ideas and the way countries or companies will use ideas or know-how developed in one country to help what they do broadly across the world. Those flows have been growing at roughly 6 percent per year as well.

There are data flows—the flows of packets of data. For example, if we were in different countries while conducting this interview there would be the flows between us. There are also flows linked to our ever-expanding use of cloud and data localization. Data transfer is happening more and more quickly.

The flows of international students have also been rising. That was mightily interrupted by the pandemic, for reasons I don’t need to belabor, but these flows seem to be rebounding. It’s important to consider the degree to which those will jump back on their accelerated growth trajectory.

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How covid-19 has affected global flows.

Lucia Rahilly: You mentioned flows of international students dropping off during COVID, for the obvious reasons. Did other flows generally drop off during the pandemic? Or were there examples of flows that were particularly resilient throughout that period?

Olivia White: There’s some variation, but many flows were remarkably resilient—resilient in a way that’s a bit counter to the general narrative about what happened during the pandemic.

The flows of resources and manufactured goods jumped reasonably significantly in 2020 and 2021, both to levels of about 6 percent per year on an annualized basis. To some degree, what was happening is that cross-border flows stepped in to replace interrupted domestic production. Flows from Asia came in, for example, to the US or to Europe. We’ve seen some flows go in reverse directions. There was a bunch of interruption in domestic production, which was quite surprising.

Flows of capital also jumped quite a lot as people needed to shift the way they were financing themselves. Multinationals needed to shift the way they were financing themselves. Some were moving liquidity to different parts of the world under times of financial stress. But those jumped to levels of growth in the tens of digits from what had actually been reversed growth for the past ten years. All those things jumped. IP jumped a little bit; data remained high. So these flows have been remarkably resilient.

The good and bad news about resource concentration

Lucia Rahilly: You invoked concentration a bit when you talked about Europe being dependent on Russia for 50 percent of its energy. Can you say a bit more about what concentration means in this context and how it affects the dynamics of the way we’re connected globally?

Olivia White: From the global perspective, there are some products that truly originate in only a few places in the world, and all of us across the globe are dependent on those few places for our supply. Iron ore is quite concentrated, and cobalt is concentrated in the DRC [Democratic Republic of the Congo].

The second type of concentration is viewed from the standpoint of an individual country. Lucia, you talked about Europe and gas dependency.

For example, Germany was getting gas from only a very concentrated set of sources. These are places where, for a variety of reasons, countries have built up dependencies on just a small number of other countries.

Why has this happened? Why are we in this position? Cost is one reason. People have made decisions based on economic factors. Another reason is regional preference. Not all goods are created equal, even if they fall in the same category.

The third reason is preferential trade agreements between different countries or other forms of tariffs or taxes that shape the way flows occur. We’re in a world in which suddenly people are realizing they have to contemplate the consequences associated with concentration—not of suppliers, but of the country of origin from which they’re buying things.

Lucia Rahilly: It sounds like concentration also increases efficiency in some cases where those disruptions don’t occur. Is concentration always a bad thing? If we rethink concentration, can we expect to see some loss of efficiency in the interim?

Olivia White: No, it’s not always a bad thing. But there are a lot of considerations to make that involve costs, involve geopolitical relationships, involve the role that various countries want to play themselves, how they’re thinking about development, how they’re thinking about their workforces. All those things have to be part of the mix.

Imagine three or four different countries, each with three trading partners, and they’re largely different trading partners. Swapping off who’s supplied by whom is a huge problem of coordination.

How global chains will evolve

Lucia Rahilly: Geopolitical risks  have obviously trained a policy spotlight on reimagining these global value chains, whether for security reasons or to strengthen resilience more generally. Accepting that the world remains interdependent, how do we see trade flows continuing to evolve in coming years?

Olivia White: Broadly speaking, there are four categories of potential evolution. Semiconductors are most prominent in public discussion. Electronics, more broadly, is one of the fastest-moving value chains since 1995, with 21 percentage points of share movement per decade. Pharmaceuticals and the mining of critical minerals are other examples. And they will be part of what shifts the way that flows crisscross the globe.

Second category: textiles and apparel. This category is not as sensitive in a geopolitical sense as some of the things I was talking about before. This category is one where you actually do have new hub creation right now. Consumer electronics, other forms of electric equipment that aren’t particularly sensitive, possibly fall in that category too.

Third category: IT services and financial intermediation or professional services. That will reconfigure the ways in which services flow.

Fourth and finally, there’s the stuff that’s just going to be steady—food and beverages, paper and printing. There’s no particular reason to expect that there are strong forcing mechanisms that will change the way those things are flowing across the world right now. They’re things that have remained relatively steady for the past ten or more years.

Global flows are necessary for a net-zero transition

Lucia Rahilly: Do we have a view on whether the evolving state of global flows is helping or hindering the net-zero transition ?

Olivia White: The way I’d put it is, there is no way we move quickly toward a net-zero transition without global flows. There are certainly things about global flows that are tricky from a net-zero perspective. It costs carbon to ship things and move things a long way. But in order for net zero to be attainable, we need to make sure that energy-generating technologies and fuels are able to flow across the world.

Energy-generating technologies include both the minerals that underpin construction of those technologies and the actual manufacturing. So, in the first category, think nickel and lithium. In the second category, think about the actual manufacturing of solar panels. The minerals themselves are processed in only a few countries around the world. So people are going to have to move them from one place to another. Maybe the world could have broader diversification of such things, but on average, the timeline from discovering a mineral to being able to produce it at scale is well in excess of 16 years. If we want to move fast, we have the luxury to move things across the world. Meeting cost curves for manufacturing at scale and in locations where you have at least some established presence is going to be important.

The final element that’s crucial with respect to net zero is cross-border capital flows. It’s really important that developing countries are able to finance shifts in the way that energy is produced and consumed in their countries, which means they may have to both spend more, at least as a ratio of GDP, and have less ability to spend, given other forms of development imperative.

Multinationals and global resilience

Lucia Rahilly: What’s the role of major multinational companies as we look ahead toward reimagining the future of our global connectedness?

Olivia White: The first thing that needs to be recognized is that major multinational corporations play an outsize role in global flows today. Multinationals are responsible for about 30 percent of trade. They’re responsible for 60 percent of exports and 82 percent of exports of knowledge-intensive goods. So they disproportionately drive flows, especially the ones associated with knowledge. And therefore, they’re going to be the center of managing for their own resilience, but also in a collective sense, for the resilience of the world.

The future of global flows

Lucia Rahilly: The media tends to focus on what some see as globalization’s imminent demise. Accepting that global ties continue to bind and connect us across the world, it’s also natural for folks to have pretty strong reactions to these intense and ongoing global disruptions that we’ve experienced in recent years. How would you sum up the way we think about the future of globalization at a high level?

Olivia White: The world we live in right now is highly dependent on flows. Will those flows reconfigure and shift? Yes, absolutely. They have in the past, and they will in the future.

Lucia Rahilly: Do we see anything in the research to indicate that the world is actually moving toward decoupling, which is also very much part of the media narrative?

Olivia White: If you look along regional lines, individual regions can’t be independent. If you just start to play with what sorts of decoupling of regions would be possible, you see very quickly that it’s not something you can do.

Now, is it possible that you would get groups of countries that become more strongly interconnected among themselves and less strongly connected with others? Absolutely. It’s possible to move in that direction. The question becomes, is there an actual decoupling, or do you just have a shift in degree? As with most things in the world, the answer tends toward the shift in degree rather than an abrupt or sharp true change or decoupling.

Lucia Rahilly: Does greater regionalization improve resilience?

Olivia White: To some degree you can say, “Look, if I’m self-sufficient, I’m more resilient.” On the other hand, all of a sudden you depend on yourself for everything, and that’s a point of vulnerability in the same way that getting it only from one other person would be a problem.

There are a whole host of reasons some degree of regionalization might help. You’ve got things closer to you. But dependency just on a few sets of people, whether or not they’re in your region, means you’ve got dependency on just a few points of potential weaknesses rather than a broad web, which in general is a more resilient and robust structure.

Lucia Rahilly: Thanks so much, Olivia. That was such an interesting discussion.

Olivia White: A real pleasure, Lucia. Thank you.

Roberta Fusaro: One example of resilience is AB InBev. Here to talk about how it’s prospering in the face of worldwide disruption is its CFO, Fernando Tennenbaum. This excerpt, “ How to thrive in a downturn: A CFO perspective ,” from our McKinsey Live series, was recorded in December 2022.

Lucia Rahilly: Fernando, we’re confronting an unusual constellation of disruptions: inflation, high interest rates driving up the cost of capital, geopolitical turbulence unexpectedly upending supply chains and sending energy prices spiking—it’s genuinely a volatile moment. Tell us, how is AB InBev faring in the current context?

Fernando Tennenbaum: We’re fortunate to be in a resilient category. Despite these twists and turns in different parts of the world, beer sales have been quite strong. That said, inflation has turned out to be much higher than expected. 2 Market conditions may have changed since this interview was conducted. We need to ensure our operations are in sync with the market, to meet this unique moment. We need to understand the state of the consumer and adjust our operations accordingly.

In emerging markets like Latin America and Africa, inflation is not new news. There are different levels of inflation, but inflation has been a part of these economies for a very long time. Consumers are more used to it, companies are more used to it—and it’s probably a more straightforward discussion.

Lucia Rahilly: You’ve spent much of your career in Latin America where, as you said, inflation has historically been much higher and more volatile than in the US or in Western Europe. Walk us through some of the lessons that we in the US, for example, could learn from.

Fernando Tennenbaum: Make sure that you’re always looking at your customers, and that you’re always keeping up with inflation. You should avoid lagging too much, and you should avoid overpricing compared with inflation. If you do too little or too much, you start disturbing the health of the consumer. If you get it right, it’s probably a good thing for the business. You have to make sure you navigate the rising cost environment while ensuring that the consumer is in a good place, your product is in a good place, and the category is a healthy one. It’s a balancing act.

You should avoid lagging too much, and you should avoid overpricing compared with inflation. If you do too little or too much, you start disturbing the health of the consumer. Fernando Tennenbaum

Lucia Rahilly: AB InBev has a diverse portfolio of brands. Volumes are good. Are customers trading up or down, during this period, between your premium and mass-market brands?

Fernando Tennenbaum: Premiumization continues to be a trend, and consumers continue to trade up to premium brands. Over the course of this year, people often asked whether consumers were trading down—and we see no evidence of trading down. That is true for the US, that is true for Africa, and that is true for Latin America—which is quite unique.

I don’t know if the future will be different; the world is changing so fast. But if you were to ask me ten years from now, I’d expect premium to be even bigger than it is today.

Lucia Rahilly: Let’s talk about uncertainty. The economy could play out in many different ways. How do you manage for that?

Fernando Tennenbaum: Let’s take our debt portfolio. Now is the moment that interest rates are going up. Inflation and borrowing are going up. Overall, this tends to be bad news—but for us, it’s quite the opposite because we don’t have any debt maturing in the next three years. We prepared for this when we saw the world going to a very different place at the beginning of 2020.

We ended up raising some long-term debt and repaying all our short-term debt. Now we’re left with a debt portfolio that has an average maturity of 16 years and no meaningful amount of debt maturing in the next three years—all at a fixed rate. Since we don’t need to refinance, we’re actually buying back our debt. Rising interest rates can be good when you can buy back debt cheaper than it cost to issue.

Lucia Rahilly: You became CFO at AB InBev in 2020, when pandemic uncertainty was at its peak. Talk to us about how you navigated that period.

Fernando Tennenbaum: The first thing we did in 2020 was pump up our cash position. Not that we needed it, but I felt it would give operations peace of mind. To be prepared, we started borrowing a lot of money. And we started taking care of our people. We needed to make sure our people were safe—that was priority number one.

Once we made sure our employees were safe, our operations were safe, then we looked at opportunities and started to fast-forward. I remember we looked at May, for example, and started to see a lot of markets doing well in terms of volume. We had a lot of cash. We started buying back some debt, especially near-term debt, to create even more optionality for the future.

We also accelerated our digital transformation. The moment was uniquely suited for it. Digital was a much better way to reach customers at a time when everybody was afraid to meet in person. In hindsight, the company ended up in a much better place today than it was three years ago—in terms of our portfolio, our digital transformation, and even financially—because we acted very quickly and created a lot of optionality during the first few months of the pandemic.

Lucia Rahilly: Any mistakes to avoid?

Fernando Tennenbaum: Looking back, I wouldn’t have done anything massively different. If I had known the outcome, I might have done things differently. But without knowing the outcome, I felt that the way we managed and the optionality we created set us up well.

Lucia Rahilly: Brewing is such an agriculturally dependent business, and agriculture has been significantly disrupted, both because of the war in Ukraine and because of climate-related risk. As CFO, how do you think about sustainability in terms of longer-term value creation?

Fernando Tennenbaum: Sustainability cuts across the whole of our business. We have a lot of local suppliers—20,000 local farmers. Our brewing processes are natural. The more efficient we are there, the more sustainable we are and, actually, the more profitable we are. We have local operations, and we sell to the local community. And most of our customers are very small entrepreneurs. The more we help them, the better they can run their business. And we say beer is inclusive because we have two billion consumers.

Lucia Rahilly: Is packaging also part of the sustainability approach?

Fernando Tennenbaum: Definitely. For example, we have returnable glass bottles. That’s very efficient, very sustainable, and from an economic standpoint, that’s probably the most profitable packaging we have. It’s also the most affordable for consumers. So it’s good for us, good for the environment, and good for the consumers.

Lucia Rahilly: You said beer is inclusive in part because so many of us drink it. How else do you approach inclusion at AB InBev?

Fernando Tennenbaum: Our two billion consumers are very different from one another. We need to make sure that, as a company, we reflect our consumers. Whenever we look at our colleagues, we need to make sure they reflect the societies where we operate—and we operate in very different societies.

A diverse and inclusive team is going to be a better team. That also applies to our suppliers. For example, if you think about suppliers in Africa, some are very poor. They manage to get access to technology, which means we can track whether they’re receiving the funds we pay them. We can track where agricultural commodities are being sourced. So how we financially empower them is also a very important part of our sustainability strategy.

Lucia Rahilly: Looking ahead, how are you thinking about innovation and investment in technology, in order to enable growth?

Fernando Tennenbaum: Innovation is a key component of beer, and there are two sides to that. One is innovation in products. The other is packaging. In Mexico, for example, we have different pack sizes for different consumption occasions and consumer needs.

Beyond that, there’s also technological innovation. Take our B2B platform, which we started piloting in 2019. Now, three or four years later, we have around $30 billion of GMV [gross merchandise value] in our e-commerce platform, which is accessible in more than 19 countries. That’s the optimal portfolio to improve customer engagement at their point of sale. Before we launched our B2B platform, we used to spend seven minutes per week interacting with our customers. Today, with our B2B platform, we interact with them 30 minutes per week. We increased the number of points of sales. For example, in Brazil, we used to have 700,000 customers, and now we have more than a million customers. Previously, they were buying our products from a distributor. Now we can reach them directly with the B2B system in place.

This connection with our customers means we can do a lot of other things, like our online marketplace, where third-party products generated an annualized GMV of $850 million, up from zero four years ago. That marketplace now continues to grow and to deliver a lot of value for our customers and for ourselves.

Lucia Rahilly: One more question: If you could give one piece of advice to a brand-new CFO of a large, multinational corporation, what would it be in this market?

Fernando Tennenbaum: Make sure you plan for different scenarios. The world is moving very fast, and you can’t expect it to unfold in a certain way. But if you have options, are agile in making decisions, and have a very engaged team, then regardless of the twists and turns, you are able to meet the moment. And you are definitely able to deliver on your objectives.

Lucia Rahilly: I lied. I’m going to ask you one more. How do you see, for these new CFOs, the relationship between sustainability and inclusivity and growth? Do you see those in tension?

Fernando Tennenbaum: There is this myth that you are either sustainable or profitable. At least at AB InBev, we’re sure they go hand in hand. The more sustainable you are, the more profitable you are, and the more value you create for your different stakeholders.

Fernando Tennenbaum is the CFO of Anheuser-Busch InBev. Olivia White is a director of the McKinsey Global Institute and a senior partner in McKinsey’s Bay Area office. Roberta Fusaro is an editorial director in the Waltham, Massachusetts, office, and Lucia Rahilly is global editorial director and deputy publisher of McKinsey Global Publishing and is based in the New York office.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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The State of Globalization in 2022

• Steven A. Altman
• Caroline R. Bastian

Its collapse has been vastly overstated, according to an analysis of international flows of trade, capital, information, and people.

As companies contemplate adjustments to their global strategies, it is important to recognize how much continuity there still is even in a period of wrenching change. The idea of a world where economic efficiency alone drives patterns of international flows was always a myth. Globalization has always been an uneven process, with cross-country differences and international conflicts significantly dampening international flows. That’s a big part of why — even before the present crisis in Ukraine — only about 20% of global economic output ended up in a different country from where it was produced. As the landscape shifts, global strategies must be updated, but managers should avoid the costly overreactions that tend to follow major shocks to globalization.

Russia’s invasion of Ukraine has led to a new round of predictions that the end of globalization is nigh , much like we saw at the beginning of the Covid-19 pandemic . However, global cross-border flows have rebounded strongly since the early part of the pandemic. In our view, the war will likely reduce many types of international business activity and cause some shifts in their geography, but it will not lead to a collapse of international flows.

• Steven A. Altman is a senior research scholar, adjunct assistant professor, and director of the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management .
• CB Caroline R. Bastian is a research scholar at the DHL Initiative on Globalization.

Partner Center

Global Evidence on the Impact of Globalization, Governance, and Financial Development on Economic Growth

• Published: 22 December 2023

Cite this article

• Ijaz Uddin 1 &
• Muhammad Azam Khan 1  

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We examined the impact of globalization, governance, and financial development on per capita income representing economic growth for 156 countries across the globe during 2002–2018. The analysis is categorized into full samples, and sub samples (i.e., low, lower, upper middle-, & high-income countries). The empirical methodology consists of 1 st and 2 nd generation panel unit root tests, panel co-integration test, Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and panel Dumitrescu Hurlin Granger causality test. The FMOLS and DOLS estimate indicated that financial development and human capital had a positive effect on economic growth for lower-income, lower-middle-income, upper-middle-income, high-income countries, and full sample. Governance factor namely control of corruption has a positive effect on economic growth in all income groups’ countries except lower-middle-income and full sample. The impact of governance factors namely political stability & absence of violence had a positive effect on economic growth in all income groups’ countries and full sample except upper-middle-income countries. Likewise, globalization had a positive effect on economic growth for all income groups’ countries, except full sample. These findings suggest that the developed financial sector, good governance, and globalization need to be strengthened to boost economic growth.

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Data Availability

Data used in this study for empirical examination have been obtained from the World Development Indicators ( 2021 ), the World Bank database, and World Governance Indicators ( 2021 ), the World Bank.

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Article Contents

Introduction, what is a polycrisis, the case of economic globalization.

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Economic Globalization's Polycrisis

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Eric Helleiner, Economic Globalization's Polycrisis, International Studies Quarterly , Volume 68, Issue 2, June 2024, sqae024, https://doi.org/10.1093/isq/sqae024

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In this article, I suggest that economic globalization is experiencing a particularly serious kind of crisis: a “polycrisis.” Use of this term has proliferated recently but with many meanings. I propose that it be defined as a cluster of distinct crises that interact in ways that they and/or their effects tend to reinforce each other. This core definition enables the identification of distinct types of polycrises that capture multiple uses of the term to date. These types vary according to the spatiality, temporality, and level of generality of each polycrisis as well as the traits of its constituent crises. The analytical utility of the term, when defined in this way, is to encourage scholars to analyze interconnections between different kinds of crises across various issue areas and to reject monocausal analyses of crisis clusters they study. Applying this understanding of the concept to the study of economic globalization, I focus on five constituent crises that are contributing to its current polycrisis. This application of the term highlights yet another type of polycrisis, illustrating the importance of the conceptual issues raised above. The article concludes with some cautions about efforts to predict economic globalization's future and about ways in which polycrisis discourse may serve political projects.

En este artículo, sugerimos que la globalización económica está pasando por un tipo de crisis particularmente grave: una «policrisis». El uso de este término ha proliferado recientemente, pero con muchos significados diferentes. Proponemos que debería definirse como un conjunto de crisis distintas que interactúan de manera que ellas y/o sus efectos tienden a reforzarse mutuamente. Esta definición básica permite la identificación de distintos tipos de policrisis que capturan los múltiples usos que ha tenido el término hasta la fecha. Estos tipos varían de acuerdo con la espacialidad, la temporalidad y el nivel de generalidad de cada policrisis, así como con los rasgos de las crisis que las componen. La utilidad analítica del término, cuando se define de esta manera, consiste en alentar a los académicos a analizar las interconexiones existentes entre diferentes tipos de crisis en diversas áreas temáticas y a rechazar las explicaciones monocausales de los grupos de crisis que estudian. Aplicamos esta comprensión del concepto al estudio de la globalización económica con el fin de centrarnos en cinco crisis constituyentes que están contribuyendo a su actual policrisis. Esta aplicación del término pone de relieve otro tipo más de policrisis, lo que ilustra la importancia de las cuestiones conceptuales planteadas anteriormente. El artículo concluye con algunas advertencias sobre los esfuerzos por predecir el futuro de la globalización económica y sobre las formas mediante la cuales el discurso de la policrisis puede servir a los proyectos políticos.

Dans cet article, j'affirme que la mondialisation économique connaît actuellement un type de crise particulièrement grave : une « polycrise ». Récemment, ce terme s'emploie de plus en plus, mais avec des acceptions différentes. Je propose de le définir comme un ensemble de crises distinctes qui interagissent de manière à ce qu'elles et/ou leurs effets tendent à se renforcer mutuellement. Cette définition permet principalement d'identifier les divers types de polycrises qui correspondent à différents usages du terme à ce jour. Ces types varient en fonction de la spatialité, de la temporalité et du niveau de généralité de chaque polycrise ainsi que des traits de ses crises constitutives. L'utilité analytique du terme, quand il est défini de cette façon, est d'encourager les chercheurs à analyser les interconnexions entre les divers types de crises dans différents domaines problématiques et de rejeter les explications monocausales des ensembles de crises qu'ils étudient. En appliquant cette façon d'appréhender le concept à l’étude de la mondialisation économique, je me concentre sur cinq crises constitutives qui contribuent à sa polycrise actuelle. Cette application du terme met en lumière un nouveau type de polycrise, ce qui montre l'importance des problématiques conceptuelles abordées plus tôt. L'article se clôt sur des avertissements concernant les efforts de prédiction de l'avenir de la mondialisation économique et les façons dont le discours de polycrise pourrait servir des projets politiques.

Predictions of the demise of economic globalization have a long and unfulfilled history. As far back as the early 1990s, the prominent scholar of international political economy (IPE), Robert Cox (1992 ), anticipated a “post-globalization” era in the context of a growing social backlash to the phenomenon. The 1997–1998 East Asian financial crisis and the 1999 protests in Seattle against the World Trade Organization (WTO) then prompted a new wave of writing about a possible “end of globalization” ( James 2002 ). Many similar forecasts of “deglobalization” were made in the wake of the massive 2008 global financial crisis (e.g., Bello 2013 ). At each of these moments, however, the economic globalization trend proved to be more durable than expected ( Bordo 2017 ).

We are living once more in an era when many analysts are claiming that economic globalization is in crisis. Given the past record of predictions, it is tempting to dismiss these claims. In this article, however, I suggest that such a reaction would be a mistake. The reason, I argue, is that economic globalization can be seen to be experiencing a “polycrisis” involving a cluster of distinct and interacting crises whose effects are tending to reinforce each other. My goal in applying this concept to the study of economic globalization is not just to highlight the seriousness of the crisis currently facing economic globalization. I also seek to clarify the meaning of “polycrisis” itself, a term whose use has proliferated recently in scholarly, media, and policymaking circles but with many meanings.

I begin by reviewing some of the diverse ways in which the term “polycrisis” has been used and propose a core definition around which its multiple uses can be organized. With this definition, I show how scholars can identify many distinct types of polycrises that capture various ways in which the term has been employed. The article then applies this understanding of the concept to the study of economic globalization, focusing on five constituent crises that are contributing to its current polycrisis. In addition to highlighting the gravity of the challenge facing this trend, this application reveals yet another type of polycrisis, thereby providing an illustration of the importance of the conceptual issues raised earlier in the article. After summarizing the core arguments, I conclude with some cautions about efforts to predict economic globalization's future as well as about the ways in which polycrisis discourse may be used to serve various political projects.

Although its origins have yet to be studied comprehensively, the word “polycrisis” appears to have been first used in 1993 by Edgar Morin and Anne Brigitte Kern in their book Terre-Patrie (translated into English in 1999 as Homeland Earth ). Emerging from a tradition of French ecological systems theory ( Whiteside 1998 ), Morin and Kern (1999 , 146, 93) call for “the realization of our common earthly fate” and the need for an “earth federation” to address global-scale crises facing humanity. They cite many such crises, including (but not limited to) “the ecological crisis” ( Morin and Kern 1999 , 8), the “global crisis of development” ( Morin and Kern 1999 , 52), “the uncontrolled and blind development of technoscience” ( Morin and Kern 1999 , 67), “the rule of mechanistic and fragmented thinking” ( Morin and Kern 1999 , 70), “the population surge” ( Morin and Kern 1999 , 73), and “global economic disorder” (which includes issues ranging from “disorder in the trade of raw materials” to poor regulation of “the enormous debt of developing countries”) ( Morin and Kern 1999 , 47–8). Many of these appear to be very deeply rooted crises, while others—such as the trade and debt issues—seem to describe more short-term phenomena.

Morin and Kern introduce the term “polycrisis” partly to emphasize the concurrent nature of the multiple crises they identify. But they also intend the term to refer to the fact that many of the crises and their effects have “inter-retroactions” and are “mutually implicative” in ways that “one is at a loss to single out a number one problem to which all others would be subordinated.” In the context of these “interwoven and overlapping crises,” they argue that “the gravity or the depth of the [overall] crisis can be measured by the degree of positive feedback and the importance of deadly perils.” In the global context they analyze, they warn that “the world is being swept… by runaway positive feedback” ( Morin and Kern 1999 , 73–4, 76). They call for new kind of “multidimensional” thinking that sees the big picture of these interconnected problems but in a way that is not reductionist or totalizing. As they put it, “we need a kind of thinking that relinks that which is disjointed and compartmentalized, that respects diversity as it recognizes unity, and that tries to discern interdependencies … that recognizes its incompleteness and can deal with uncertainty, the unforeseen, interdependencies, and inter-retro-actions that quickly expand to a planetary scale, discontinuity, nonlinearity, disequilibrium, ‘chaotic’ behavior, and bifurcations” ( Morin and Kern 1999 , 130–1). Morin and Kern's use of the term was soon echoed by others interested in ecological issues and transdisciplinary thought, some of whom added adjectives to the term such as “global polycrisis” or “capitalist polycrisis” ( Haverkort 2009 , 59; Pillay 2013 , 159; see also Swilling 2020 ).

In 2016, the president of the European Commission, Jean-Claude Juncker, popularized a somewhat different use of the term “polycrisis.” He used it to refer to a combination of crises facing the European Union (EU) “at the same time” and in ways that “feed each other,” such as “the security threats in our neighbourhood and at home,” “the refugee crisis,” and “the UK referendum” ( Juncker 2016 , 1). Juncker's use of the term was quickly picked up by scholars of the EU (e.g., Ágh 2017 ). While his focus on simultaneous and self-reinforcing crises echoes that of earlier writers, Juncker refers to a polycrisis of a specific entity—the EU—instead of the kind of general “polycrisis” affecting the whole world that preoccupies Morin, Kern, and their followers. The polycrisis that he invokes is also conceptualized as a much more short-term phenomenon than that of Morin and Kern. Indeed, some passages in Morin and Kern's book seem to suggest that they have in mind a polycrisis that might extend back more than a century ( Morin and Kern 1999 , 74).

The most recent wave of references to a “polycrisis” has been provoked by Adam Tooze's (2021 ) use of the term in his book Shutdown and subsequent writings. Tooze refers to the earlier uses of the term by Morin, Kern, and Juncker, and his definition of the term is similar to their collective focus on a combination of distinct and interacting crises: “In the polycrisis the shocks are disparate, but they interact so that the whole is even more overwhelming than the sum of the parts.” Like Morin and Kern, Tooze emphasizes that these disparate crises do not have a “single cause” ( Tooze 2022a ). Also similar to them is his focus on “the polycrisis” as singular global phenomenon facing humanity as a whole, a position that contrasts with that of Juncker (whose formulation opens the door to the idea that there can be many smaller “polycrises” in the world at any given moment). Unlike Morin and Kern, however, Tooze dates the origins of the global polycrisis in the quite recent past, around 2008 ( Whiting and Park 2023 ). In addition to issues such as climate change, his list of crises that make up “the polycrisis” also includes some distinctive immediate and geographically specific phenomena, such as Russia's invasion of Ukraine, US election results, and European sovereign debt crises ( Tooze 2022c ).

Tooze's use of the term “polycrisis” has been widely cited in diverse outlets, including scholarly journals (e.g., Davies and Hobson 2023 ), popular media (e.g., Gillespie 2022 ), and even the World Economic Forum's (WEF) 2023   Global Risks Report . When referencing Tooze, many analysts have simply repeated his conception of the term. But some modify it in interesting ways, such as the WEF (2023 , 57), which tweaks his definition, suggesting that a polycrisis is “a cluster of related global risks with compounding effects, such that the overall impact exceeds the sum of each part.” The WEF also departs from Tooze's focus on a singular global-scale “polycrisis” by referring to many possible “polycrises.” This formulation is closer to Juncker's, but the WEF concentrates not on a specific regional polycrisis but rather on a global sectoral one relating to growing “natural resources shortages by 2030” ( WEF 2023 , 7). In the WEF's (2023 , 58) formulation, this potential “natural resource polycrisis” could arise from a combination of crises, such as specific inter-state conflicts and climate change, and their analysis implies that it could last for some time.

Clarifying Its Meaning

The above discussion is not meant to be a comprehensive survey of all the ways in which the term polycrisis has been used to date. Instead, my goal is simply to note some of the diverse meanings ascribed to the term (see also Janzwood and Homer-Dixon 2022 ; Davies and Hobson 2023 ). Does this multiplicity of meanings suggest that discussions of polycrisis are hopelessly muddled? It does not. Most usages of the term embrace a core definition that can be summarized succinctly as follows: a polycrisis is a cluster of distinct crises that interact in ways that they and/or their effects tend to reinforce each other . The phrase “tend to reinforce” is chosen deliberately to indicate that the crises and/or their effects may not always reinforce each other via positive feedback loops. Negative feedback loops can also exist, but the core of the polycrisis concept highlights that the overall tendency is in the opposite direction, with the result that, in Tooze's words, “the whole is even more overwhelming than the sum of the parts.”

Using this core definition, we can then distinguish between different kinds of polycrises that encompass the various ways in which the term is being used. Specifically, polycrises can be seen to differ across four dimensions. First, they can be distinguished from each other by their spatiality . For example, the polycrises identified by Morin and Kern, Tooze, and the WEF involve the globe as a whole. By contrast, Juncker's is focused on the more limited regional space of Europe. Other polycrises could be identified with a different spatial orientation, such as those at national or local levels.

Second, polycrises can differ in their temporality . Using Fernand Braudel's (1980 , 28) terminology, some are conceptualized with a relatively “short-time span” lasting years, such as Juncker's discussion of the EU's polycrisis. Others are more “conjunctural” with a duration of one or more decades, such as the types that Tooze and the WEF seem to have in mind. Still others might exist in the “longue durée” of a century or more ( Braudel 1980 , 33). Morin and Kern come closer to that conception in some parts of their analysis.

Third, polycrises in these various time-space contexts can differ according to their level of generality ; that is, whether they involve society as a whole or just one dimension of it. Morin, Kern, and Tooze all focus on polycrises of the general type. By contrast, Juncker has a more specific concern with a polycrisis involving just one institution within Europe—the European Union—rather than European society as a whole. The WEF is also focused on a global polycrisis that involves only one specific sector of the world economy (natural resources) rather than the world as a whole.

Finally, polycrises differ according to the kinds of constituent crises that make them up. The traits of the latter can also be seen to vary in their spatiality and temporality, just as do polycrises themselves (their level of generality varies less because it is usually specific). For example, the crises that Juncker identifies as constituting the EU's polycrisis are all regional and short-term ones (emulating the traits of the EU polycrisis itself). In the case of Morin and Kern's polycrisis, their constituent crises are largely global in scope, but they are diverse in their temporality, including both conjunctural and longue durée phenomena. The crises making up the polycrises discussed by Tooze and WEF vary considerably in both their spatiality and temporality (e.g., short-term inter-state conflicts versus longer term global climate change).

In sum, the term “polycrisis” can be seen to have a common core meaning, while at the same time appearing in more varieties than Morin and Kern initially suggested (see  table 1 ). With this understanding of the term, what does the term polycrisis add analytically to the study of world politics? As Morin and Kern emphasized in their initial formulation, the concept as a whole encourages analysts to do two things simultaneously.

Varieties of polycrises

The first is to look for interconnections between different kinds of crises and their effects across various issue areas. That type of work is less common in the study of world politics than one might expect. A glance through past issues of this journal, for example, reveals the ubiquity of the term “crisis” in the study of world politics, but most studies have a focus on one crisis or a set of crises within a similar issue area. In an era of growing scholarly specialization, this narrow focus risks becoming even more pronounced. The study of polycrises encourages scholars to move in the opposite direction, looking at how distinct crises across diverse issue areas and their effects can, in Morin and Kern's words, have “inter-retroactions” and be “mutually implicative.”

Second, the concept encourages scholars to look beyond monocausal analyses of the clusters of crises they are studying. In the study of world politics, monocausal analyses are often favored by advocates of competing theoretical traditions who mine history and current events for evidence to support their analytical presuppositions. The polycrisis concept discourages that approach. Morin and Kern (1999 , 74) place heavy emphasis on this point, warning against analyses of crises that “single out a number one problem to which all others would be subordinated.” Tooze (2022b ), too, has noted that he is attracted to the polycrisis concept because “the prefix “poly” directed attention to the diversity of challenges without specifying a single dominant contradiction or source of tension or dysfunction..” As he puts it, the concept speaks to “our inability to understand our current situation as the result of a single, specific causal factor.”

The work cited above provides some examples of how the term polycrisis has begun to be applied to the study of world politics to date. This section applies it in a new way to the study of economic globalization. One goal is to highlight the severity of the crisis currently facing economic globalization. The second is to show a new application of the term, one that illustrates the conceptual issues discussed in the first part of this article.

Before elaborating on these two points, it is important to note that economic globalization can have different temporal meanings. From the perspective of the longue durée, it can be seen as a very long-term trend that began in the fifteenth century. Current IPE debates about its future, however, are usually focused on a more conjunctural conception of the trend: the growing economic interconnectedness of the world since the 1980s. This conjunctural trend has been fostered partly by technological revolutions that have enabled and encouraged larger and faster movements of goods, services, capital, data, and people across the globe. Also important has been the growing liberalization of controls on cross-border flows that intensified after 1980 in response to a number of developments, such as the ascendency of neoliberal ideas, the unwinding of the Cold War, and the strengthening of multilateral bodies (including the establishment of the WTO).

As noted in the introduction, predictions of an impending reversal of this conjunctural conception of economic globalization have surfaced previously in the early 1990s, the late 1990s, and around the time of the 2008 global financial crisis. In each case, the trend endured. To be sure, the growth of cross-border lending and trade has slowed since the 2008 crisis in comparison to the previous three decades, leading some to describe the period from 2008 to 2021 as one of “slowbalization” ( Aiyar et al 2023 ). The term is useful not just for describing this shift but also in emphasizing that globalization persisted in the post-2008 era. For example, international migration has continued to grow in this period, and the overall ratio of global trade to global GDP has not declined ( Aiyar et al 2023 ). In sectors such as trade in services and the flow of data and intellectual property, global integration has even accelerated ( Seong et al 2022 ).

In the last few years, there has been much talk once again about a crisis of economic globalization or even a “Great Crisis of Globalization” ( Pozsar 2022 , 7). Even prominent analysts who have been critical of past claims of economic globalization's reversal, such as Martin Wolf (2022 ), have speculated about an “end to globalisation.” The word “crisis” is defined in the Oxford Dictionary as “a time of danger or great difficulty,” a “turning point,” or “a decisive moment” ( Barber 2004 , 359). For many analysts, these descriptors aptly describe the contemporary moment in relation to the state of economic globalization today.

Wolf (2022 ) points to growing geopolitical tensions as the key threat to economic globalization. However, the concept of polycrisis encourages us to explore whether the crisis has multiple causes. In what follows, I suggest that this is, in fact, the case. Indeed, I point to five distinct and interacting crises that are challenging economic globalization concurrently. My analysis is not meant to provide an exhaustive list of the crises that might be playing this role, but instead simply to highlight the diverse nature of the threats to globalization as well as the ways in which their effects are reinforcing each other. Whether economic globalization's polycrisis will result in a deglobalization trend is a separate question that I address very briefly in the conclusion. In this section, I am simply trying to underline the seriousness of the “poly” nature of this crisis.

In addition to making this point, the discussion shows how the polycrisis concept can be applied in a new way, reinforcing the conceptual point made in the last section about the need to recognize diverse kinds of polycrises. It shows that polycrises can be experienced not just by institutions, sectors of the world economy, or the world as a whole, but also by social trends . The categories outlined above also help us to isolate other distinctive features of this polycrisis (see  table 2 ). Its spatiality is global; its level of generality is quite specific (i.e., it is just focused on an economic trend); its temporal duration is presently short term (although it could easily become a more conjunctural phenomenon for reasons noted in the conclusion); and its constituent crises have diverse spatial and temporal traits.

Economic globalization's polycrisis

The rest of this section is devoted to a brief description of these constituent crises. Given space constraints, the discussion is necessarily short and does not attempt to cite or provide a summary of all of the rich literature analyzing each of them. Instead, my goal is simply to note their diverse traits, their significance for the economic globalization trend, and the ways that their effects reinforce each other.

Crisis in Chimerica

The first constituent crisis has been the dramatic fracturing of US-China economic relations since 2018. A core foundation for the global economy during the first decade and half of the twentieth century was the deep and broad economic integration of the US and Chinese economies that followed China's 2001 entry into the WTO. This structure—sometimes called “Chimerica” ( Ferguson 2008 , ch.6)—was supported by a broadly cooperative pattern of economic relations between the two countries. That pattern was first thrown into crisis by the US-China trade war that began in 2018 when the Trump administration raised tariffs on many Chinese products and the Chinese government retaliated with its own protectionist measures. Compounding the crisis was the Trump administration's move to limit the access of specific Chinese firms to US technology and investment, and to block some Chinese investments in the US and the use of some Chinese-made equipment in US telecommunications ( Friedberg 2022 ). As US policy towards China shifted in these ways, the Chinese leadership also became more interested in reducing their country's economic dependence on the US. As Xi Jinping put it in the fall of 2018, “unilateralism and trade protectionism have risen, forcing us to travel the road of self-reliance” (quoted in Helleiner 2021 , 951).

The Trump administration justified its new economic policies towards China with various arguments, such as those invoking domestic social and economic costs of free trade as well as incompatibilities between China's economic model and that of the US and the rules of the US-led international economic order. At this time, China was also increasingly depicted in US policymaking circles as a strategic rival that was seeking to challenge US power and economic pre-eminence. That shift in perspective was, in fact, already evident in the Obama administration's 2015 National Security Strategy, and it had structural roots in the changing power positions of the two countries. But it was also encouraged by the more assertive foreign economic policies that Xi Jinping pursued after coming to power in 2012, such as the Belt and Road Initiative (begun in 2013), the creation of new Chinese-led multilateral financial institutions (announced in 2014), and the 2015 launch of the Made-in-China 2025 program (e.g., Hopewell 2021 ; Weiss 2021 ; Friedberg 2022 ).

The Trump administration's policies towards China were then continued and intensified by the Biden administration, including with new controls in October 2022 on the export of semiconductor chips and chip-making technology to China's entire high technology sector as well as limits on US persons’ ability to work with Chinese chip producers. China has responded to the Trump and Biden initiatives with new laws that strengthen its capacity to restrict trade for security reasons and empower authorities to target foreigners who implement discriminatory policies against Chinese firms on non-commercial grounds ( Zhou et al. 2022 ). Economic tensions between the two countries have also been heightened by the initiatives of both governments to strengthen activist policies aimed at boosting their local manufacturing capacity and global leadership in leading technological sectors ( Weiss 2021 ; Malkin 2022 ).

The new economic conflict between the US and China threatens economic globalization not just by calling into question the deep structure of interdependence between the world's two leading economies that emerged in the Chimerica era. It has also endangered global economic interdependence more generally. For example, US export controls have been applied not just to US goods but also to foreign goods made with US inputs. As a result, companies around the world have been forced to scrutinize and rejig their international supply chains in order to avoid falling afoul of US law. In this way, the growing US interest in decoupling economically from China is forcing third parties to choose sides in the US-China economic conflict. This spatially concentrated crisis is, thus, increasingly casting a wider global shadow.

Crisis in Global Health

The crisis of Chimerica was soon accompanied by a quite different kind of crisis in global health that threatened economic globalization: the global pandemic that began in early 2020. In its first few months, the pandemic generated a more severe global economic shock than the 2008 global financial crisis. In addition to causing a collapse of global demand, the pandemic unleashed chaos in global supply chains. Production and trade networks were severely disrupted by the lockdowns and border closures, and some countries imposed temporary export restrictions on items such as food, medical equipment, and vaccines. This combination of demand and supply shocks caused world trade to collapse dramatically in the initial stage of the crisis. Border closures also undermined migration directly ( James 2023 , ch. 7).

The pandemic challenged economic globalization not just in these immediate and direct ways. It also undermined support for economic interdependence in a more enduring manner by revealing costs and vulnerabilities of depending on unreliable global markets, supply chains, and the decisions of foreign governments. To reduce those costs and vulnerabilities, many governments showed a new interest in fostering shorter and less complicated supply chains and greater national self-reliance, including in sectors such as food, medical supplies, and vaccines. National resilience, rather than global efficiency, became a popular new mantra in ways that reinforced the criticisms of economic globalization that had already been encouraged by the crisis of Chimerica.

In the United States, for example, policymakers who had championed Trump's protectionist policies argued that the pandemic strengthened their case to reverse “offshoring” and “bring the jobs back to America” ( Lighthizer 2020 ). Top officials in the EU have also now called for the boosting of domestic production capacity in key sectors and the need to look “extremely carefully at the behaviour of every country where we have a supply chain.” Even policymakers who had previously been enthusiastic about globalization now began to sing a new tune, such as India's Prime Minister Narendra Modi, who declared in May 2020 that the creation of a “self-sufficient India” was a new national objective (quotes in Helleiner 2021 , 951–2).

Some of these kinds of sentiments expressed at the start of the pandemic endured, even as the health crisis waned. Indeed, The Economist (2020 ) warned of this possibility in May 2020: “don't expect a quick return to a carefree world of unfettered movement and free trade. The pandemic will politicise travel and migration and entrench a bias towards self-reliance.” Almost three years later, the IMF's Managing Director, Kristalina Georgieva (2023 ), highlighted that the pandemic had also had a dramatic impact on corporate views: “Supply chain disruptions during the COVID-19 pandemic have also increased the focus on economic security and making supply chains more resilient. Since the outbreak, mentions in companies’ earnings presentations of reshoring, onshoring, and near-shoring have increased almost ten-fold.”

Crisis in International Security

Alongside these two clustered crises, a third very spatially specific one emerged in the security realm in early 2022 to threaten economic globalization in new ways: the Russian invasion of Ukraine. Western governments responded quickly and forcefully to the invasion with a package of sanctions that were the most ambitious ever to be applied against a major economy in the post-Cold War period. They restricted Russian access to Western markets, payment systems, technology, and investment. They also froze Russian foreign exchange reserves, seized assets of Russian oligarchs, and imposed price caps on Russian oil exports (enforced via Western shipping insurers). Russia responded with sanctions of its own as well as by restricting oil and gas exports and blocking grain exports from Ukrainian ports.

These various actions unraveled many international economic ties and decoupled the Russian economy from those of Western countries in important ways. In Georgieva's (2023 ) words, the result has been “massive disruptions of financial, food, and energy flows across the globe.” These disruptions, in turn, have prompted other governments to impose trade restrictions as a way of coping with the uncertainty. Indeed, the IMF's first deputy managing director, Gita Gopinath, noted in early 2023 that more than thirty countries had imposed restrictions on trade in energy, food, and other commodities since the war began ( Shalal 2023 ).

Equally important, these actions have illustrated dramatically the vulnerability of all states to the potential “weaponization” of economic interdependence by foreign states in the service of foreign policy goals. That vulnerability had already been highlighted by earlier episodes, such as those associated with the US-China conflict since 2018 and the pandemic, as well as earlier US sanctions imposed on countries such as Iran and various Chinese trade restrictions on countries whose actions displeased its leadership (dating back to its controls on the exports of rare earth minerals to Japan in 2010). But the Western sanctions against Russia demonstrated the point particularly starkly because of their scale. The sanctions also revealed the unique coercive capacity of Western states—particularly when they acted together—arising from their position at the center of many of the key transnational economic networks that had emerged in the era of globalization ( Farrell and Newman 2019 ).

The weaponization of economic interdependence in this context has generated growing concerns among policymakers around the world. As India's minister for external affairs, Subrahmanyam Jaishankar, warned in 2023, “everything is being weaponised in this world” (quoted in Chaulia 2022 ). Even after the war ends, these concerns are likely to endure since many governments are now strengthening their capacity to engage in this kind of economic warfare (see Schmitz and Seidl 2023 for the EU case). A lesson learned during the pandemic is only being reinforced in this context: the dangers of economic interdependence. As Nicholas Mulder (2022 ) notes, the same lesson was drawn in the 1930s when sanctions imposed by the League of Nations provided an important catalyst for countries such as Japan, Italy, and Germany to turn towards more autarkic policies.

The ways in which weaponization can prompt initiatives to promote greater national self-sufficiency are already evident, particularly in sectors such as payment systems, food, energy, and critical minerals (e.g., Broff and O'Sullivan 2022 ; de Goede and Westermeier 2022 ; Dieter and Bietermann 2022 ; Riofrancos 2023 ). Another response to weaponization has been the new promotion of “friendshoring” in which international economic ties are increasingly restricted to countries regarded as allies (and thus less likely to weaponize those ties) ( Yellen 2022 ). Both the promotion of greater national self-sufficiency and friend-shoring only compound the challenges facing economic globalization that have arisen from the two crises already discussed.

Global Environmental Crisis

These three crises emerged together in the short-time span of the 2018–22 period and are already challenging economic globalization in important and reinforcing ways. Two other slower-moving, more conjunctural crises in the contemporary era are beginning to push in the same direction. The first is the growing seriousness of climate change. As this global environmental crisis deepens, governments are committing to address it in increasingly ambitious regulatory ways. But these commitments vary across jurisdictions, not least because of differences in relative domestic influence of those with “climate-vulnerable” assets versus those with “climate-forcing” ones ( Colgan et al 2021 ). In this context, states with more ambitious pro-change regulations face a problem: their tighter regulations risk triggering a flight of investment to more lightly regulated jurisdictions as well as the loss of competitiveness of their domestic firms. To minimize this risk, policymakers are already beginning to reject open trade and investment relations with countries whose climate regulations are weaker.

This development is particularly evident in the EU, which agreed in 2022 to phase in a “carbon border adjustment mechanism” for this very reason. Starting in 2026, this tool may lead to tariffs being raised on a number of carbon-intensive products that are imported from jurisdictions without carbon pricing schemes. Other jurisdictions are now considering similar measures, and discussions have even begun about the creation of “climate clubs” in which collections of countries apply carbon-related tariffs against third parties ( Leonelli 2022 ). These initiatives are both reinforcing and gaining political strength from the pressures for deglobalization arising from the three crises noted already.

The climate crisis is also challenging liberal trading practices in a second way. To promote a green economic transition, governments are increasingly turning to activist policies to encourage the growth of domestic sectors such as clean energy. When these policies favor local producers, they risk falling afoul of WTO rules and triggering trade wars ( Lewis 2014 , 2021 ). A prominent example is the 2022 US Inflation Reduction Act, which provides subsidies and tax credits for electric vehicles produced locally and with local parts. The protectionist features of this law have provoked widespread complaints in the European Union and elsewhere. But they are also already acting as a catalyst for the development of similar policies outside the US, policies that risk further undermining the integrated global trading order.

Finally, economic globalization is threatened by the climate crisis in the more general sense that many environmentalists blame this economic trend for encouraging climate-damaging consumption, transportation, competition, and growth. To avoid climate catastrophe, these critics call for economic structures that are more localized and ecologically sustainable. These views are prominent in environmentalist circles in all parts of the world, including even in China (e.g., Huang and Tian 2020 ). At the moment, they have less sway in mainstream policy circles, but their influence may grow as the climate crisis intensifies and other challenges to globalization open the door to wider critiques of the trend.

Crisis in Democracy

The other slower-moving crisis that is beginning to challenge economic globalization is a more spatially specific political one: the growing crisis of democracy in a number of countries across the globe. The majority of countries in the world can still be classified as democracies, but their democratic features have been weakening in many places, particularly since the 2010s. This erosion of democracy has also been evident in the growing influence of authoritarian populist movements (e.g., Cooley and Nexon 2022 ).

In the 1980s and 1990s, many of the champions of economic globalization argued that the trend would strengthen democracy throughout the world. But that view has less support today, and many defenders of democratic values now blame economic globalization itself for the weakening of those values. From this latter standpoint, globalization has contributed to a number of developments that are undermining democracy, such as growing domestic inequality, heightened socio-economic insecurity, and the erosion of sovereignty and governments’ capacity to respond to domestic demands. Critics argue that these conditions have generated growing domestic discontent that is being mobilized and channeled by leaders who appeal to authoritarian values. That appeal often resonates particularly strongly among historically dominant domestic groups that are experiencing a relative decline in their social status because of the economic effects of globalization (e.g. Ballard-Rosa et al. 2021 , 2022 , Milner 2021 )

These consequences of economic globalization are encouraging some (but not all) defenders of democratic values to become more skeptical of the trend. That skepticism is strengthened by a second concern: that global economic interdependence has provided new channels for foreign authoritarian regimes to undermine democracies. Analysts have noted how those regimes have increasingly taken advantage of the economic openness of democracies to advance illiberal political agendas in the latter's jurisdictions. In this context, some defenders of democratic values have begun to advocate a partial retreat from economic globalization in favor of closer economic ties among countries that share common democratic values ( Cooley and Nexon 2022 ). This democratic case for what Aaron Friedberg (2022 ) calls “value-based” blocs often overlaps with, and reinforces, the geopolitical case for “friend-shoring” and broader critiques of globalization emerging from the other crises.

How severe is the contemporary crisis of economic globalization? In this article, I have suggested that it is indeed a serious crisis because this trend is threatened by a cluster of interacting but distinct crises that have emerged and whose effects are reinforcing each other. I have cited five, but this list is not meant to be exhaustive. Each of the ones I have described poses a challenge to economic globalization on its own. Taken together, they can be seen to be contributing to economic globalization's polycrisis.

This polycrisis may prove short-lived, paving the way for a new acceleration of economic globalization. But it could also extend in time, becoming more of a conjunctural phenomenon. After all, some of the constituent crises I have cited are themselves conjunctural in nature, including climate change, the crisis in democracy, and, most probably, the crisis in Chimerica (because of its structural roots). The pandemic was officially declared over in 2023 by the World Health Organization, and the war in Ukraine may turn out to be relatively short-lived, but both of these crises are also likely to leave some enduring legacies. If the polycrisis’ duration extended in time and even deepened, the recent era of “slowbalization” could begin to morph into one of deglobalization, characterized either by sector-specific developments such as a declining ratio of global trade to global GDP or by a wider retreat from multiple dimensions of global economic interdependence.

Predicting the future of economic globalization, however, is not the goal of this article. At the very least, such a task would require a more comprehensive analysis of the challenges facing this trend. It would also need to study countervailing pressures, such as possible negative feedback amongst the crises discussed in this article, the influence of various economic interests that continue to support global economic integration, and the potential for creative policy responses to the polycrisis. Even then, however, a detailed analysis of these various issues might not generate very useful predictions for the reason Morin and Kern emphasized: the very nature of a polycrisis makes its future difficult to forecast.

In addition to highlighting the seriousness of the crisis facing economic globalization, this article has attempted to clarify the meaning of the term “polycrisis” itself. As this article has shown, the term has been used in a number of quite different ways since it was first introduced by Morin and Kern. I have suggested a core definition that ties these diverse uses together, one that describes a polycrisis as a cluster of distinct crises that interact in ways that they and/or their effects tend to reinforce each other. This definition enables scholars to identify diverse types of polycrises that capture various ways in which the term has been used to date. These types vary according to the spatiality, temporality, and level of generality of each polycrisis, as well as the traits of its constituent crises. By applying the term in a new way to the current crisis of economic globalization, I have also provided another important illustration of this diversity. More generally, I have also suggested that the key analytical utility of the term polycrisis, defined in this way, is to encourage scholars to analyze interconnections between different kinds of crises across various issue areas and to look beyond monocausal analyses of the clusters of crises they study.

As a concluding comment, I have one additional suggestion for those employing the “polycrisis” concept: they should engage more with recent literature that is critically examining crisis discourses in world politics. Jacqueline Best (2016 , 41), for example, highlights how crises are “narrated” in ways that “determines the kinds of policy changes that they make possible.” Helge Jordheim and Einar Wigen (2018 , 738) also urge scholars to recognize that “labelling something a crisis can be thought of as a speech act that shapes political contestation over a particular issue or field.” Similarly, Columba Peoples (2024 , 3) calls attention to the recent proliferation of “crisis talk” surrounding the liberal international order, arguing that it “most often does the work of functioning as a technology of crisis management.” These analyses also cite the work of historian Reinhardt Koselleck (1988 ) and anthropologist Janet Roitman (2014 ), both of whom have analyzed the history of crisis discourses, showing their association in modernity with social critique and demands for action as well as conceptions of progress.

The insights of this literature should encourage greater critical scrutiny of the new “polycrisis talk” and the ways in which it might be employed in support of certain social critiques and demands for action. Morin and Kern certainly use it in that way. Their book is both a radical critique of many societal trends and, in the words of its subtitle, a “manifesto for the new millennium.” Juncker and the WEF also clearly have political agendas when employing the term, but ones that come closer to the conservative “crisis talk” that Peoples critiques. From their elite position, they invoke the word in the context of their concerns about challenges to the status quo and their demands for system-sustaining action. The word “polycrisis,” in other words, has already been serving competing purposes in wider battles within contemporary world politics.

Does this mean that the term should be rejected by scholars of world politics? It is important to note that even strong skeptics of the term “crisis” do not necessarily call for it to be rejected altogether. Roitman (2014 , 94), for example, is well known for her wariness of the term and for warning that crisis discourse “allows certain questions to be asked while others are foreclosed.” But she also insists that her position “does not amount to denying crisis.” Instead, she argues that “ the point is to take note of the effects of the claim to crisis, to be attentive to the effects of our very accession to that judgement ” ( Roitman et al 2020 , 775, emphasis in the original). This advice is equally relevant and important for those studying and using the term polycrisis today. As this word appears with growing frequency in scholarship and wider public discourse, they must be attentive to ways that it may be associated with different kinds of political projects, including when it is applied to the study of economic globalization.

Author Biography

Eric Helleiner is University Research Chair and Professor in the Department of Political Science and Balsillie School of International Affairs at the University of Waterloo. His most recent book is The Contested World Economy: the Deep and Global Roots of International Political Economy (Cambridge, 2023).

Author's Note: I am very grateful to the anonymous referees and the journal editors for their very helpful comments on the initial draft of this paper.

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The effects of globalization on economic development

Globalization represents an ongoing phenomenon characterized by the growing connectedness and interdependence among nations, individuals, and businesses worldwide. This process involves the integration of economic, political, social, and cultural systems across borders, resulting in increased flows of goods, services, capital, people, and ideas.   

The rate of globalization has increased in recent years and is being shaped by rapid advancements in communication and transportation technologies, as well as the liberalization of trade and investment policies. Our World Data attributes the rapid increase in international trade and investment as being the main drivers behind this increased rate. Facilitated by the reduction of trade barriers and the emergence of new technologies that allow for the rapid movement of goods, services, and capital across borders, the rapid increase in international trade and investment is the key driver behind the increased rate in globalization we see today. However, other drivers are also responsible for shaping globalization today, these drivers include advances in transportation and communication technologies, the rise of multinational corporations, the growth of global financial markets, and the spread of cultural and social norms. The combination of these drivers has led to increasingly integrated economies and societies around the world, and thus we are seeing the emergence of a globalized world. But what exactly does this mean for economic development?  

What are the impacts of globalization on economic development?

The effects of globalization on economic development have been both positive and negative. Globalization has paved the way for new markets, enhanced trade and investment, and fostered cross-border technology and knowledge transfers. These developments have contributed to greater economic growth, improved productivity, and job creation in numerous areas worldwide. However, globalization has also given rise to intensified competition, income disparity, and environmental damage in certain regions.  

This article will not only analyze the positive and negative impacts of globalization on different regions and industries, but we will also discuss the strategies that governments and businesses can use to adapt to and take advantage of a globalized economy.  

Positive impacts of globalization on economic development

As mentioned above, the effects of globalization on economic development include a variety of positive impacts on economic development, including increased trade and investment opportunities, access to new markets and customers, greater efficiency and productivity, the spread of new technologies and knowledge, increased competition, and the potential for economic growth and development.  

Increased trade and investment opportunities:    

Globalization has created new opportunities for countries to trade and invest across borders. This has led to increased economic activity and higher levels of economic growth.   

Access to new markets and customers:    

Globalization has allowed businesses to expand their customer base and access new markets, which has helped to boost sales and profits.   

Greater efficiency and productivity:    

Globalization has increased competition among businesses, which has driven innovation and efficiency, leading to increased productivity.       

Spread of new technologies and knowledge:    

Globalization has facilitated the spread of new technologies and knowledge across borders, allowing countries to learn from one another and adopt best practices.   

Increased competition:    

Globalization has increased competition among businesses, which has led to lower prices and higher quality products for consumers.   

Potential for economic growth and development:    

Globalization has the potential to drive economic growth and development, particularly for developing countries that have been able to attract foreign investment and benefit from increased trade opportunities.  

Negative impacts of globalization on economic development   

The effects of globalization on economic development include both positive and negative impacts. Alongside the positive impacts of globalization on economic development, globalization has also brought about a range of negative impacts on economic development, including job losses and industry declines in some regions, widening income inequality, cultural homogenization, environmental degradation, dependence on foreign markets and investors, and vulnerability to global economic downturns.  

Loss of jobs and industries in some regions:    

Globalization has led to the relocation of industries and jobs to countries with lower labor costs, which has led to job losses and industry declines in some regions.  

Widening income inequality:    

Globalization has increased income inequality between and within countries, with some countries and individuals benefiting more than others.  

Cultural homogenization:    

Globalization has led to the spread of Western culture and values, which has resulted in the homogenization of cultures and the loss of traditional cultures.  

Environmental degradation:    

Globalization has contributed to environmental degradation, with increased trade and economic activity leading to higher levels of pollution, deforestation, and climate change.  

Dependence on foreign markets and investors:    

Globalization has led to increased dependence on foreign markets and investors, which can leave countries vulnerable to economic shocks and downturns.  

Vulnerability to global economic downturns:    

Globalization has increased the interconnectedness of economies, making them more vulnerable to global economic downturns and crises.   

Strategies for governments and businesses to adapt to and take advantage of a globalized economy  

Undoubtedly, globalization has generated both favorable and adverse effects on economic development. To capitalize on these outcomes, governments must adjust and seize the opportunities presented by a globalized economy.  

There are several strategies that governments and businesses can implement to adapt to and take advantage of a globalized economy, such as investing in education and training, diversifying industries, developing infrastructure, supporting Small and Medium-sized Enterprises (SMEs), implementing environmental and social standards, promoting foreign investment, and finally promoting networking and collaboration.   

  Investment in Education and Training:    

Governments and businesses can invest in education and training to improve the skills of their workforce and increase their competitiveness in a globalized economy. This can include providing training programs for employees, supporting vocational and technical education, and investing in research and development.   

Diversification of Industries:    

Governments and businesses can diversify their economies and industries to reduce their reliance on a single industry or market. This can help to reduce the impact of economic shocks and increase resilience to global economic trends.   

Infrastructure Development:    

Governments can invest in infrastructure such as roads, ports, and airports to facilitate trade and attract foreign investment. This can help to improve the efficiency and competitiveness of local businesses, increase trade flows, and create employment opportunities.   

Support for Small and Medium-sized Enterprises (SMEs):    

Governments can provide support for SMEs to help them compete with larger firms in a globalized economy. This can include providing access to finance, facilitating market access, and providing training and advisory services.   

Implementation of Environmental and Social Standards:    

Governments and businesses can implement environmental and social standards to ensure sustainable economic development. This can include implementing environmental regulations to reduce pollution and waste, promoting sustainable resource use, and protecting workers’ rights.   

Promotion of Foreign Investment:    

Governments can promote foreign investment by offering incentives such as tax breaks, low-interest loans, and simplified regulations. This can help to attract foreign investment and create new employment opportunities. Learn more about promoting foreign investment to your region here.  

Collaboration and Networking:    

Governments and businesses can collaborate and network with other countries and industries to share knowledge, expertise, and best practices. This can help to improve competitiveness, access new markets, and create new business opportunities.  

How to balance the opportunities and challenges of globalization for economic development?

Overall, globalization has brought about a range of both positive and negative impacts on economic development in a variety of regions and industries. Governments and businesses need to adapt to and take advantage of a globalized economy while also ensuring that they can balance the opportunities and challenges of globalization for economic development.   

Balancing the opportunities and challenges of globalization for economic development is essential for taking advantage of the opportunities of globalization while also mitigating its negative impacts on society and the environment. This balance will require a comprehensive approach that addresses the various aspects of the globalized economy.   

Governments and businesses must utilize a comprehensive approach that prioritizes inclusive economic growth, fosters innovation and technological advancements, promotes sustainable development, focuses on international cooperation, invests in education and skills development, and implements effective regulatory frameworks.

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Is globalization in retreat? Here is what a new study shows

Sebastian franco bedoya.

The debate is raging: Is globalization in retreat or not? If yes, to what extent, and what are the implications for global prosperity and poverty reduction? These aren’t easy questions to answer, largely because there are different definitions of globalization, which give rise to different ways of measuring it. Recent research at the World Bank, based on a new definition, suggests that globalization is alive and well.

But first, some context. For more than 50 years, globalization has been a catalyst for economic development, trade integration, and prosperity building. It has helped lift more than 1 billion people out of poverty. Since the 1990s, it has become a pathway for businesses in emerging economies to enter global value chains and nearly double their share of exports. Breathtaking advances in communications, transportation, and information technology have made it easier and cheaper for countries on opposite sides of the world to transact business, tap into each other’s markets, and share resources, knowhow, and technology. On the other hand, some critics in advanced economies blame globalization for the loss of manufacturing jobs, and others point to it as a source of greenhouse gas emissions.

Recently, the COVID-19 pandemic, the war in Ukraine, and China-US tensions have led countries and companies to rethink global strategies. But to what extent is globalization actually retreating?  Some studies find little systematic evidence that it is, while others conclude that “trade openness” has recently fallen in some regions, coinciding with a slower pace of trade reforms and posing a threat to growth. This isn’t just an academic exercise. Accurately measuring globalization is necessary to understand the impact of the current challenges on the world economy. Economic policy cannot risk either overestimating deglobalization or underestimating the costs of such a scenario. For this reason, we need a clear definition with precise empirical applications that can guide economic policy.

The trade-to-GDP ratio — which calculates the relative importance of a country’s imports and exports to its economy — is one way to measure “openness” to trade  . This ratio steadily rose until 2008, then suffered a sudden drop in 2009 following the global financial crisis. By 2011 it had recovered, but it lacked the same vigor as before the crisis, suggesting to some that globalization was waning.

Some economists continue to the use trade-to-GDP ratio as a measure of openness, although many others argue that it is an inadequate yardstick and doesn’t necessarily imply that high trade barriers exist. Instead, it could reflect factors such as the size or structure of the economy or its geographic proximity to trading partners.

So globalization is better understood as an extension beyond national borders of the same market forces operating at all levels of economic activity. Using this definition, we measured the intensity of globalization as the growth of international trade relative to domestic trade. For instance, automakers sell some cars in the domestic market and export the rest. Comparing the evolution of the exports of cars with domestic sales offers a better measure of globalization dynamics than the trade-to-GDP ratio.  The model used to capture the relative dynamics of international and domestic trade is what economists call a structural gravity model. It allows for comparisons across countries and over time, capturing more intuitive globalization dynamics than the trade-to-GDP ratio. Among other factors, the reduction in trade barriers and advances in information technology make international trade grow faster than domestic trade, with the world becoming more globalized and with greater economic connectivity and cooperation among countries.

Based on this research, there is no evidence that the world economy has entered an era of deglobalization.  China’s trade-to-GDP ratio, for example, has trended downward since 2006 and is now below both the world average and the level in 2001, when China entered the World Trade Organization. Yet even considering recent trade tensions with the United States, it would be difficult to argue that the Chinese economy is drastically less “open,” as the trade-to-GDP ratio would suggest. A better explanation is that trade has become less important to China’s GDP as its domestic economy has boomed.

A globalization analysis consistent with economic theory requires the study of sector-specific dynamics. For instance, manufacturing has traditionally been a more trade-intensive sector, but information and communication technology (ICT) advances seem to be making services more tradable, pointing to more globalization opportunities in the future. Figure 1 plots the main results of our research. It shows that globalization dynamics in manufacturing were already strong in 1965, while agriculture and services “took off” in the late 1970s and 1990s, respectively. There is no sign of a deglobalization trend post-2008.

Figure 1. Globalization took off at various times, depending on the sector and country.

Figure 1 (b) investigates manufacturing dynamics across countries. These results uncover differing dynamics, situating China as a globalization leader starting in the 1980s, outperforming the world economy significantly during the entire period. This story is different from the one told by the trade-to-GDP ratio. Other results also offer deep insights by illustrating how countries like India, while lagging in manufacturing globalization, have outperformed the world economy in services.

The debate on globalization uses various terms --  slowbalization, deglobalization, reglobalization. Each tells a very different story about changes in the world economy. Our research contributes to these debates by offering a globalization toolkit to understand where the world economy stands today  and helping us to prepare for future dynamics.

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Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

Parisa samimi.

1 Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia

2 Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Hashem Salarzadeh Jenatabadi

3 Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

Associated Data

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

This study uses a dynamic panel data model to investigate the effect of globalization on economic growth. The model can be shown as follows:

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

The Name and Definition of Indicators.

Funding Statement

The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

ENCYCLOPEDIC ENTRY

Globalization.

Globalization is a term used to describe the increasing connectedness and interdependence of world cultures and economies.

Anthropology, Sociology, Social Studies, Civics, Economics

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Globalization is a term used to describe how trade and technology have made the world into a more connected and interdependent place. Globalization also captures in its scope the economic and social changes that have come about as a result. It may be pictured as the threads of an immense spider web formed over millennia, with the number and reach of these threads increasing over time. People, money, material goods, ideas, and even disease and devastation have traveled these silken strands, and have done so in greater numbers and with greater speed than ever in the present age. When did globalization begin? The Silk Road, an ancient network of trade routes across China, Central Asia, and the Mediterranean used between 50 B.C.E. and 250 C.E., is perhaps the most well-known early example of exchanging ideas, products, and customs. As with future globalizing booms, new technologies played a key role in the Silk Road trade. Advances in metallurgy led to the creation of coins; advances in transportation led to the building of roads connecting the major empires of the day; and increased agricultural production meant more food could be trafficked between locales. Along with Chinese silk, Roman glass, and Arabian spices, ideas such as Buddhist beliefs and the secrets of paper-making also spread via these tendrils of trade. Unquestionably, these types of exchanges were accelerated in the Age of Exploration, when European explorers seeking new sea routes to the spices and silks of Asia bumped into the Americas instead. Again, technology played an important role in the maritime trade routes that flourished between old and newly discovered continents. New ship designs and the creation of the magnetic compass were key to the explorers’ successes. Trade and idea exchange now extended to a previously unconnected part of the world, where ships carrying plants, animals, and Spanish silver between the Old World and the New also carried Christian missionaries. The web of globalization continued to spin out through the Age of Revolution, when ideas about liberty , equality , and fraternity spread like fire from America to France to Latin America and beyond. It rode the waves of industrialization , colonization , and war through the eighteenth, nineteenth, and twentieth centuries, powered by the invention of factories, railways, steamboats, cars, and planes. With the Information Age, globalization went into overdrive. Advances in computer and communications technology launched a new global era and redefined what it meant to be “connected.” Modern communications satellites meant the 1964 Summer Olympics in Tokyo could be watched in the United States for the first time. The World Wide Web and the Internet allowed someone in Germany to read about a breaking news story in Bolivia in real time. Someone wishing to travel from Boston, Massachusetts, to London, England, could do so in hours rather than the week or more it would have taken a hundred years ago. This digital revolution massively impacted economies across the world as well: they became more information-based and more interdependent. In the modern era, economic success or failure at one focal point of the global web can be felt in every major world economy. The benefits and disadvantages of globalization are the subject of ongoing debate. The downside to globalization can be seen in the increased risk for the transmission of diseases like ebola or severe acute respiratory syndrome (SARS), or in the kind of environmental harm that scientist Paul R. Furumo has studied in microcosm in palm oil plantations in the tropics. Globalization has of course led to great good, too. Richer nations now can—and do—come to the aid of poorer nations in crisis. Increasing diversity in many countries has meant more opportunity to learn about and celebrate other cultures. The sense that there is a global village, a worldwide “us,” has emerged.

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