Economic Globalization and Emerging Economies
By Zahra Ali Imran and Riya Mathur, 6/7/2020
MENA: Increased Globalization and the Influence of Petroleum
Globalization has been heralded both as the savior and damnation of the world. Large and sustained surges in the cross-border flow of goods, money, ideas and people have been the dominant factor in world affairs for the past three decades.At this point in time, the majority of the globe considers globalization in terms of economics as one of its most significant aspects. Economic globalization can be seen as the growing liberalization of international trade and investment that results in increases in the integration of national economies via trade, FDIs (Foreign Direct Investments), investment cash flows, and the dispersal of technology.
MENA, an acronym for the Middle East and North Africa region, includes approximately 19 countries, covering the area from Morocco in northwest Africa to Iran in southwest Asia and down to Sudan in Africa. The MENA region accounts for approximately 6% of the world's population, 60% of the world's oil reserves, and 45% of the world's natural gas reserves. Substantial petroleum and natural gas reserves mark the MENA region as an important source of global economic stability; the GDP of the MENA region's oil exporters account for about two-thirds of the region's GDP. However, from the plague of war, violence, low oil prices and lack of globalization stems a disappointing performance of the region’s economies.
“The notion that the poor countries of the world can in any reasonable interval achieve rich-country incomes without trade and capital flows is utterly implausible. If the poor countries of the world have to depend on themselves for the savings to finance the investment that they need, or have to develop the skills and technology they need to become rich by our standards, it’s going to take forever,” says Nobel Laureate Robert Solow. Over the last several decades, the Middle East and North Africa region has been unable to reap the full benefits of globalization and world economic integration. Multiple factors have been assumed as the cause of the region’s malaise, however the poor performance of Arab MENA can be chiefly explained by their aversion to a Western paradigm of market economics. Globalization is largely viewed by economically advanced countries in economic terms involving free movement of goods, services, labor and capital across borders, while MENA views it in largely ideological terms and regards it as a new take on imperialism. Consequently, the Arab MENA region remains one of the most un-globalized regions in the world.
Challenges facing the MENA region are daunting, where limited integration has stifled the region's ability to tap into its significant potential for economic growth and job creation. It receives only one third the foreign direct investment expected for its economic size and virtually nonexistent portfolio investment as a result of underdeveloped equity markets. FDI inflows managed to increase between 2000 and 2008, however met a decline to 15.5bn USD by 2017, almost 3.5 times lower than in 2008 at their peak. UAE and Egypt received the majority of the inflows, accounting for around 37% and 27% of inflows into the region respectively, followed by Morocco at 9.5%, Lebanon at 9.4% and Oman at 6.7%. The ratio of FDI to gross domestic product (GDP) in the Middle East countries was noted to be at least three to four times lower than that found in other developing economies. Additionally, MENA rests on high tariffs spread across countries and products, despite having been reduced to meet global levels. Hence, trade costs for the area’s non-oil exports constitute 20-40% of the final delivered price. Furthermore, the MENA region remains that part of the world least represented in the World Trade Organization, with ten of the 22 member countries of the regional Arab League umbrella body not WTO members. In 2017, the MENA share of world trade stood at a mere 4.8% as shown in comparison to other regions’ shares in Figure 1.
Globalization has been heralded both as the savior and damnation of the world. Large and sustained surges in the cross-border flow of goods, money, ideas and people have been the dominant factor in world affairs for the past three decades.At this point in time, the majority of the globe considers globalization in terms of economics as one of its most significant aspects. Economic globalization can be seen as the growing liberalization of international trade and investment that results in increases in the integration of national economies via trade, FDIs (Foreign Direct Investments), investment cash flows, and the dispersal of technology.
MENA, an acronym for the Middle East and North Africa region, includes approximately 19 countries, covering the area from Morocco in northwest Africa to Iran in southwest Asia and down to Sudan in Africa. The MENA region accounts for approximately 6% of the world's population, 60% of the world's oil reserves, and 45% of the world's natural gas reserves. Substantial petroleum and natural gas reserves mark the MENA region as an important source of global economic stability; the GDP of the MENA region's oil exporters account for about two-thirds of the region's GDP. However, from the plague of war, violence, low oil prices and lack of globalization stems a disappointing performance of the region’s economies.
“The notion that the poor countries of the world can in any reasonable interval achieve rich-country incomes without trade and capital flows is utterly implausible. If the poor countries of the world have to depend on themselves for the savings to finance the investment that they need, or have to develop the skills and technology they need to become rich by our standards, it’s going to take forever,” says Nobel Laureate Robert Solow. Over the last several decades, the Middle East and North Africa region has been unable to reap the full benefits of globalization and world economic integration. Multiple factors have been assumed as the cause of the region’s malaise, however the poor performance of Arab MENA can be chiefly explained by their aversion to a Western paradigm of market economics. Globalization is largely viewed by economically advanced countries in economic terms involving free movement of goods, services, labor and capital across borders, while MENA views it in largely ideological terms and regards it as a new take on imperialism. Consequently, the Arab MENA region remains one of the most un-globalized regions in the world.
Challenges facing the MENA region are daunting, where limited integration has stifled the region's ability to tap into its significant potential for economic growth and job creation. It receives only one third the foreign direct investment expected for its economic size and virtually nonexistent portfolio investment as a result of underdeveloped equity markets. FDI inflows managed to increase between 2000 and 2008, however met a decline to 15.5bn USD by 2017, almost 3.5 times lower than in 2008 at their peak. UAE and Egypt received the majority of the inflows, accounting for around 37% and 27% of inflows into the region respectively, followed by Morocco at 9.5%, Lebanon at 9.4% and Oman at 6.7%. The ratio of FDI to gross domestic product (GDP) in the Middle East countries was noted to be at least three to four times lower than that found in other developing economies. Additionally, MENA rests on high tariffs spread across countries and products, despite having been reduced to meet global levels. Hence, trade costs for the area’s non-oil exports constitute 20-40% of the final delivered price. Furthermore, the MENA region remains that part of the world least represented in the World Trade Organization, with ten of the 22 member countries of the regional Arab League umbrella body not WTO members. In 2017, the MENA share of world trade stood at a mere 4.8% as shown in comparison to other regions’ shares in Figure 1.
However, globalization and MENA are caught up in a paradoxical relationship. Despite MENA countries’ integration in processes of economic globalization being recognized as that trailing behind many emerging markets, included countries have had continued but scattered advantages. Israel stands as the only MENA country with a notable presence in the high-tech sector, allowing it to draw on a unique ecosphere of military alumni networks, venture capital and close ties to international capital markets. Moreover, Turkey has established a large steel industry and the Gulf countries and Morocco have capitalized on their competitive advantage of cheap feedstock by successfully setting up petrochemical, aluminum and fertilizer industries. MENA marks itself as a region with one of the highest military spending budgets, with countries such as Saudi Arabia and the UAE being the largest arms importers, having established arms industries that require international cooperation. Turkey and Israel possess the most advanced DTIBs and also export arms. Furthermore, the Gulf and Turkey have accepted logistics and airlines as a major diversification sector, aiding countries to open new geographical areas of cooperation in Asia and Africa. MENA is also the world’s largest cereal importer, where it enhances its global integration through investments in international companies for food trading and processing.
In essence, it is crucial to recognize the lack of acceptance of globalization by the majority as the root of MENA’s present discontents. Despite pronounced efforts directed towards economic integration, stimulation of a new wave of globalization, although expected to lack sufficient consensus, remains the glimmer of hope to set free the Arab MENA region from its counterproductive, downward spiral.
In essence, it is crucial to recognize the lack of acceptance of globalization by the majority as the root of MENA’s present discontents. Despite pronounced efforts directed towards economic integration, stimulation of a new wave of globalization, although expected to lack sufficient consensus, remains the glimmer of hope to set free the Arab MENA region from its counterproductive, downward spiral.
BRICS: Rapid Growth in Populous Nations
Developing economies have emerged as the frontrunner of rapid growth, new opportunities in trade and industry and gathering attention from the outside world when it comes to potential investments. It is, then, only fair to take a look at how globalisation, which is broadly the economic, social, political, ecological and technological integration of economies all over the world. Spurred growth in international trade and relations, enhanced capital investments and open access to markets in other economies are some of the key features of globalisation which makes it so desirable for any emerging economy.
Perhaps the greatest example of the same would be BRICS, the association of some of the world’s strongest emerging economies, namely Brazil, Russia, India, China and South Africa together accounting for around 45% of the world’s population and more than 20% of the total GDP. According to Truman, these high potential countries have the power to exert substantial influence on global balances of power. Ever since the outset of economic globalisation, the rates of development and growth using major macroeconomic indicators like GDP per capita, trade numbers and other metrics in BRICS have been almost at par with those of their more advanced counterparts, if not exceeded them in some aspects. IMF statistics predicted BRICS to exhibit a GDP growth rate almost equal to that of developed economies quadrupled. Statistically, BRICS nations prospered due to the open trade that globalisation presented, with China taking the first place in becoming the export hub of the world, accounting for around 20% of the world imports in the early years after international trade picked up. Brazil, Russia and India too became prominent markets as well as powers to behold in terms of trade in minerals, metals, fossil fuels, agriculture, textiles etc. Furthermore, Ivan and Muresan (2010), provided considerable data which showed how the countries have also benefited in the field of finance, where all the nations did see significant inflows of investment at rates higher than those of some of their more advanced counterparts in a matter of a few years.
India and China are the two most populous countries, and thus experience both the positive and negative aspects of globalisation. In such cases, millions of small businesses and local handicrafts continue to face the risk of downright extinction. Each member of BRICS faces a high domestic demand where consumption forms a major chunk of the GDP which makes the balance of the economy shaky. Ever since these markets have integrated with the rest of the world, the susceptibility of their economies to foreign markets coupled with heavy reliance on agriculture till date pose a great threat to the existing structures of most economies, making them increasingly vulnerable. Adding to the conversation, their ranks in terms of competitiveness have not improved as significantly as one would have expected.
In the coming years, the cooperation among the BRICS and their respective rates of economic growth will be crucial to see how their association continues to hold considerable power.
Developing economies have emerged as the frontrunner of rapid growth, new opportunities in trade and industry and gathering attention from the outside world when it comes to potential investments. It is, then, only fair to take a look at how globalisation, which is broadly the economic, social, political, ecological and technological integration of economies all over the world. Spurred growth in international trade and relations, enhanced capital investments and open access to markets in other economies are some of the key features of globalisation which makes it so desirable for any emerging economy.
Perhaps the greatest example of the same would be BRICS, the association of some of the world’s strongest emerging economies, namely Brazil, Russia, India, China and South Africa together accounting for around 45% of the world’s population and more than 20% of the total GDP. According to Truman, these high potential countries have the power to exert substantial influence on global balances of power. Ever since the outset of economic globalisation, the rates of development and growth using major macroeconomic indicators like GDP per capita, trade numbers and other metrics in BRICS have been almost at par with those of their more advanced counterparts, if not exceeded them in some aspects. IMF statistics predicted BRICS to exhibit a GDP growth rate almost equal to that of developed economies quadrupled. Statistically, BRICS nations prospered due to the open trade that globalisation presented, with China taking the first place in becoming the export hub of the world, accounting for around 20% of the world imports in the early years after international trade picked up. Brazil, Russia and India too became prominent markets as well as powers to behold in terms of trade in minerals, metals, fossil fuels, agriculture, textiles etc. Furthermore, Ivan and Muresan (2010), provided considerable data which showed how the countries have also benefited in the field of finance, where all the nations did see significant inflows of investment at rates higher than those of some of their more advanced counterparts in a matter of a few years.
India and China are the two most populous countries, and thus experience both the positive and negative aspects of globalisation. In such cases, millions of small businesses and local handicrafts continue to face the risk of downright extinction. Each member of BRICS faces a high domestic demand where consumption forms a major chunk of the GDP which makes the balance of the economy shaky. Ever since these markets have integrated with the rest of the world, the susceptibility of their economies to foreign markets coupled with heavy reliance on agriculture till date pose a great threat to the existing structures of most economies, making them increasingly vulnerable. Adding to the conversation, their ranks in terms of competitiveness have not improved as significantly as one would have expected.
In the coming years, the cooperation among the BRICS and their respective rates of economic growth will be crucial to see how their association continues to hold considerable power.
