Globalisation and
Economic Development
– Africa and Asia By Dr Anthony Stokes
Senior Lecturer in Economics
Head of the School of Arts and Sciences (NSW and ACT)
Australian Catholic University, Strathfield
While there is a great deal of talk about ‘Globalisation’, it is
often spoken of as if everyone understands what is meant by
the term or, alternatively, as some giant mysterious force that
controls the world. Globalisation can be as simple as having
an international student attending school with you or surfing
the internet to do your homework.
Globalisation can be defined as the potential and actual
movement among nations of:
• Trade
• Investment
• Technology
• Finance and
• Labour
In looking at the impact of globalisation on economic
development in Africa and Asia, this article will be mainly
concerned with the impact of trade and investment.
The process of globalisation is forging deeper interconnections
between countries. In economic terms the space between
people and countries is shrinking rapidly, as trade, technology
and investment link all countries in a web of interdependence.
In human development terms the space between countries is
marked by deep and, in some cases, widening inequalities in
income and life chances.
STUDENT ACTIVITIES
1. What do you understand the term ‘globalisation’ to mean?
2. Provide examples of the operation of the process of globalisation
within our region.
3. Discussion activity. Use the article, and your own knowledge,
to identify some of the outcomes of globalisation. Refer to
both positive and negative outcomes, with reference to specific
countries where possible.
4. Find definitions for the following terms:
•  Standard of living
•  Quality of life
•  Purchasing power parity
•  Gross domestic product per capita
Measures of Economic Development
It is important to understand the nature of economic
development and how it can be measured. Economic
development is the physical situation and the state of mind
whereby a society through some combination of social,
economic and institutional processes secures the means to
obtain a better life. This better life includes:
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• increasing the availability and a widening in the distribution
of basic life sustaining goods such as food, shelter, health
and protection.
• raising living standards, in addition to higher income, by
providing improved education, employment opportunities,
health care and self-esteem.
This can be achieved by expanding the range of economic and
social choices available to individuals and nations, such as the
right for women to work and to receive an education. While
achieving higher economic growth is a step in this process, there
is also a need in most cases for social and economic reforms.
The main measure of living standards in the world is the human
development index (HDI). The HDI covers three dimensions of
human welfare: income, education and health. Its purpose is not
to give a complete picture of human development but to provide
a measure that goes beyond income. The HDI is a barometer
for changes in human well-being and for comparing progress in
different regions.
Many Australians take their living standards for granted. The
quality of life for the majority of Australians is quite high
compared to other economies. The 2009 Human Development
Report (HDR) (based on 2007 data) ranks Australia's quality of
life as the second highest in the world, after Norway. The main
factors that give Australia such a high ranking are our high life
expectancy of 81 years and the amount of education we receive,
(where Australia is ranked first in the world). Our economic
growth as measured by Gross Domestic Product per capita is
ranked 22nd in the world.
These three criteria are used to measure quality of life as it is
believed that they will reflect a country's overall standard of
living. Education is seen as a source of productivity and growth
and a high education ranking is considered as an indicator of
opportunity for the people in a country. In some countries,
such as Niger, in Africa, less than 30 per cent of children finish
primary school and the rate for females is below 15 per cent.
Life expectancy also reflects your living standards. Countries
with low living standards tend to have short life expectancies.
For example the life expectancy in Afghanistan and Zambia is
only 44 years. A long life expectancy usually reflects good food,
health and general living standards.
The GDP per capita is measured in terms of purchasing power
parity (PPP). This tells you how much people living in a country
can buy with their money compared to someone in a different
country. So a high GDP per capita (PPP) means that the average
person's ability to buy goods and services is high compared to
 the average person in a country with a low GDP per capita.
For example Australia's GDP per capita (PPP) was $35,000 US
in 2007 compared to only $298 US in the Congo and $341 US
in Burundi.
Over the last decade the HDI has been rising across all
developing regions, though at variable rates and with the
obvious exception of Africa. Figure 1 shows the HDI rankings
from 1990 to 2007 of four African countries where development
has been inconsistent (Botswana) or gone backwards (South
Africa, Swaziland and Zambia). In comparison Figure 2
displays the rising Human Development Index levels of three
Asian countries (Bangladesh, China and India) that have
benefited from globalisation.
STUDENT ACTIVITIES
5. Explain the difference between economic growth and economic
development.
6. Why is the Human Development Index a better indicator
of development than income measures such as GDP or
GDP per capita?
7. Where does Australia rank under the HDI measure?
8. Explain the apparent disparity between our HDI ranking and
our ranking on the basis of GDP per capita.
9. How has the process of globalization impacted on the HDI
rankings of developing countries over the past decade?
Refer to Figures 1 and 2 in your answer.
Figure 1: Human Development Index of Selected African
Countries (1990–2007)
0.8
0.7
0.6
0.5
% 0.4
Botswana
South
Africa
Swaziland
0.3
Zambia
0.2
0.1
0 0.9
1990 1995 2000 2005 2007
Years
Source: Human Development Report, 2009 http://hdr.undp.org/
STUDENT ACTIVITIES
10. a. Identify the reasons for the reversals in HDI in some African
nations.
b. What could halt the decline? Cite an example.
11. Examine the link between life expectancy and the level of national
income. Include reference to specific countries in your answer.
12. a. Explain the correlation between income levels and literacy
levels.
b.  How do literacy levels impact on the productivity of labour?
c. What is the link between productivity levels and wage levels?
The Impact of HIV/AIDS
There are several countries in southern Africa where major
reversals in human development are still occurring, largely as
a result of HIV/AIDS. Over the years, other countries have
also experienced setbacks – in particular as a result of conflict,
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internal strife or severe economic changes – but
these have usually recovered once a period of stability has
been established and maintained, such as in Burundi and
Rwanda in Africa. In southern Africa the HIV/AIDS epidemic
is affecting not only life expectancy, but also education and
economic growth. HDI values began to decline in the mid
1990s in this group of countries. They are still falling in
both South Africa and Swaziland and have barely turned the
corner in Lesotho and Namibia. There are signs of recovery
in Botswana and Zambia, although the HDI value is still
well below earlier levels. The drop in HDI values for these
countries is almost entirely explained by the sharp decline
in life expectancy.
In contrast, a number of countries are in the process of
recovering from reversals. These countries include the post-
conflict countries in sub-Saharan Africa (for example, the
Central African Republic, Cote d'Ivoire and Liberia).
The Impact of Poverty
A child born in the top 20 countries can expect to live to at
least 80 years, but if she or he happens to be born in one of the
bottom 20 countries, on average life expectancy is only
49 years. In countries with the highest life expectancies a child
born today can expect to live twice as long as a child born in
Swaziland or Zambia, the countries at the bottom of the world's
life expectancy ranking.
So while overall the opening up of global markets and
opportunities through globalization are raising living standards
overall, there are many who are missing out. The poorest
20 per cent of the world's people, roughly corresponding to the
population living on less than $1 a day, account for 1.5 per cent
of world income. The poorest 40 per cent, corresponding to
the $2 a day poverty threshold, account for five per cent of
world income. More than 40 per cent of the world's population
constitutes, in effect, a global underclass, faced daily with the
reality or the threat of extreme poverty. (HDR 2009)
Figure 2: H
 uman Development Index of Selected Asian
0.8
0.7
0.6
%
0.5
China
0.4 India
Banglades
0.3 h
0.2
0.1
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Years
Countries (1990–2007)
Source: Human Development Report, 2009 http://hdr.undp.org/
If we compare the quality of life in Australia with our Asian
neighbours, we find that inhabitants of East Asia and the Pacific
have a life expectancy of 72 years and South Asia have a life
expectancy of 64 years. Income levels are also lower with an
average GDP per capita (PPP) of $5700 US in East Asia and
the Pacific and $2900 US in South Asia. Literacy rates are
also much lower in these regions with 93 per cent in East Asia have the highest economic growth rates. Some countries
and the Pacific and 64 per cent in South Asia, compared to are highly dependent on export earnings. For example,
100 per cent in Australia. It is important to note that a person Singapore's export earnings are growing at more than double
is measured as literate if they are over 15 years old and have their national GDP. This, however makes them very vulnerable
completed Year 6 at school. to trade shocks.
Figures 3–5 show that regions such as the developing Asian
The Role of Exports in Growth economies that have had trade growth averaging around 12
There is a close relationship between the level of exports and per cent per annum in the last two decades have also had GDP
the rate of economic growth in countries throughout the world. growth of over 10 per cent per annum. The African region as a
The countries and regions with the highest ratios of their whole has had export growth of around five per cent and GDP
exports compared to Gross Domestic Products (GDP) also growth of six per cent. The sub-Saharan region has had similar

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

25

20

15

10
Asian export growth
%
Asian GDP growth
5

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
-5

-10
Years

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

African GDP and Export Growth

14

12

10

African GDP Growth

%4
African Export Growth

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-2

-4

-6
Years

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

15

10

Export Growth
%
GDP Growth

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-5

-10
Years

Source: IMF, 2010

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growth rates to the rest of Africa with exports at five per cent
and GDP of six per cent. One major difference in the exports
in the two major regions is that the African economies are
much more dependent on a few commodities and are therefore
more affected by fluctuating commodity prices. This has been
especially so in Nigeria, Algeria and Libya with most export
income coming from oil. Likewise Zambia is highly dependent
on copper exports, Chad on cotton and Uganda on Coffee.
The developing economies in Asia are mainly expanding their
manufacturing sectors.
STUDENT ACTIVITIES
13. Use the Circular Flow of Income model to illustrate the
relationship between exports and national income.
14. Use statistics from the article to explain why developing
economies in Asia appear to be more globalised than those in
Africa.
15. Examine Figures 3, 4 and 5 and comment on the similarities and
differences in the path of GDP growth. Refer to the pace of
growth and the levels of volatility.
The Role of International Investment
International Investment is also an important source of
growth and development in the global economy. International
Investment relates to investment by transnational corporations
(TNCs) such as Microsoft, Shell Oil and Nike. It is also
known as International Direct Investment (IDI). There are
approximately 77,000 TNCs with over 770,000 foreign
subsidiaries operating throughout the world. These
corporations set up their businesses in foreign countries and
inject investment, technology and job opportunities into the
economies. They also provide valuable foreign exchange for
the economies.
Figure 6: F
 oreign Direct Investment Inflows by Region
2006–2009
1 9 (Billions of dollars)
97 962
Developing countries
Developed Africa Latin America South, East West Asia
economies and the and South-
Caribbean East Asia
and Oceania
Source: UNCTAD, 2010
In recent years the areas of greatest new investment have been
into the emerging markets in Asia, South America and the
countries of the former USSR. As can be seen from Figure
6 relatively little foreign investment is going into Africa and
the least developed countries in the Sub-Saharan region.
This movement into the growth regions has occurred due to
their relatively low wage rates and their growing economies
providing opportunities for profit. These emerging markets
also have growing export markets so the investment is
further expanding exports and as a result economic growth.
The African countries have the least investment, generally a
narrow export base and low export growth. The narrow export
base and low levels of investment are preventing the African
economies from gaining the full benefits of globalization. While
rising commodity prices up till 2008 did lead to rising levels
of Foreign Investment into most of the regions of Africa, the
sharp decline in commodity prices and the slowdown in global
economic growth in the second half of 2008 reversed the trend
as TNCs cancelled or postponed new projects in the wake of the
Global Financial Crisis.
Conclusion
Globalisation has brought export growth and increased
economic growth to many areas of the world in recent
decades. This has largely lead to improved standards of living
for many people especially in developing Asia. The situation
is mixed in Africa with some countries improving and
others going backward. The long term economic growth and
development path for many of the African economies
will be one of increased exports and investment. The way
to gain increased investment is for these nations to widen
their export base away from primarily commodities into
manufacturing and service industries. While rising commodity
prices did assist the African economies in the middle of the
first decade of the 21st century for long term development the
answer lies in the development of manufacturing and service
industries.
STUDENT ACTIVITIES
16. How does the pattern of global investment help to explain why
some regions are growing and developing faster than others.
Use examples from the article to justify your answer.
17. Why do TNCs keep moving their operations from one developing
economy to another?
18. Identify the costs and benefits of foreign investment:
2006 a. for the TNC
b. for the developing economy
2007
2008
2009:Q1
19. What does the term 'narrow export base' mean?
20. How does a narrow export base impact on a nations' trade
performance?
References
International Monetary Fund (1999-2009), World Economic Outlook, available
at http://www.imf.org/
South-East Memorandum
Europe LDCs Stokes, A. (2009), The Global Financial Crisis, available at http://homepages.
and CIS ihug.com.au/~gep/economics.htm
Stokes, A. and S. Wright (2009), Globalisation and the Global Financial Crisis,
available at http://homepages.ihug.com.au/~gep/economics.htm
The United Nations Conference on Trade and Development (UNCTAD)
(2009), Assessing the Impact of the Current Financial and Economic
Crisis on Global FDI Flows, available at http://www.unctad.org/en/docs//
diaeia20093_en.pdf
The United Nations Conference on Trade and Development (UNCTAD) (2010),
World Investment Report 2009, available at http://www.unctad.org/en/docs/
wir2009pt1_en.pdf
United Nations Development Program (UNDP) (2010), Human Development
Report, 2009, available at http://hdr.undp.org/
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