Globalisation and Inclusive Growth in Africa: The Role of Institutional Quality

Published date01 February 2024
AuthorTerver Theophilus Kumeka,Isiaka Akande Raifu,Oluwatosin Adeniyi
Date01 February 2024
Subject MatterArticles
Globalisation and
Inclusive Growth in
Africa: The Role of
Institutional Quality
Terver Theophilus Kumeka1, Isiaka Akande Raifu2
and Oluwatosin Adeniyi2
This study examines the relationship between globalisation and inclusive growth
by considering the modulating role of institutional quality. To achieve our broad
objective, we use data from 45 African economies over 1996–2018 to deter-
mine the panel cointegration and cointegrating regression association between
inclusive growth, globalisation and institutional quality. To determine a suitable
estimation technique for the empirical analysis, several pre-estimation tests were
conducted. After confirming the existence of cointegration and slope hetero-
geneity, we adapted the long-run panel cointegrating methods—the fully modi-
fied ordinary least squares and dynamic ordinary least squares estimations. The
results from both show that aggregate globalisation and its various dimensions
have positive and significant effects on inclusive growth. Besides the direct posi-
tive impact on inclusive growth, globalisation has indirect positive and signifi-
cant impact on inclusive growth through institutional quality. Finally, some policy
implications are highlighted.
JEL Codes: E02, F62, F63, O15, O43
Globalisation, institutional quality, inclusive growth, cointegrating regressions
Foreign Trade Review
59(1) 62–97, 2024
© 2023 Indian Institute of
Foreign Trade
Article reuse guidelines:
DOI: 10.1177/00157325221142652
1 Faculty of Humanities, Management and Social Sciences, Department of Economics, Dominican
University, Ibadan, Nigeria
2 Faculty of Economics and Management Sciences, Department of Economics, University of Ibadan,
Ibadan, Nigeria
Corresponding author:
Terver Theophilus Kumeka, Department of Economics, Faculty of Humanities, Management and
Social Sciences, Dominican University, Ibadan, Nigeria.
Kumeka et al. 63
This study is motivated by the following research questions: Does globalisation
promote inclusive growth in Africa? Does institutional quality play any signi-
cant role in the globalisation–inclusive growth relationship? To determine the
impact of globalisation on the global economy, several eorts have been made to
appropriately provide an operative or working denition of globalisation. There-
fore, according to the International Monetary Fund (2002), globalisation can be
dened as the process through which there is an increasing ow of people, goods
and services, ideas and capital from one country to another which results in the
integration of the world economies and societies. Thus, it represents internation-
alisation of production of goods and services, division of labour, free migration of
people and borderless competitive markets as well as the internationalisation of
countries into a community called a globalised world (Cox, 1994). The successful
evolution of globalisation has been attributed to several factors (Crafts, 2004).
The most important of them is the development of technology, which has brought
about information and communication technology (ICT) through research in
science and technology.1
Ensuring economic growth is a key preoccupation of many countries. Beyond
this, there are also concerns about how the benefits of economic growth would
reach all citizens. Put differently, many countries are interested in how economic
growth would reduce both poverty and inequality. Thus, international organisa-
tions, particularly the United Nations, came up with different targets that are asso-
ciated with economic development and named them the sustainable development
goals (SDGs) designated to be achieved by 2030. The proponents of globalisation,
especially economic globalisation, believe that it can help some countries, par-
ticularly developing countries, to achieve some of the SDGs, essentially in the
aspect of poverty and inequality reduction as well as the provision of decent jobs.
One of the channels through which this would be accomplished is free trade and
global financialisation that would propel new investment, provide new, decent
jobs, raise wages and productivity and spur economic growth (Gopinath & Parket,
2019). With the increase in economic activities and the provision of jobs, poverty
and inequality would be reduced drastically (Urata & Doan, 2022). However,
others have expressed dissatisfaction about the claimed advantages of globalisa-
tion. According to Stiglitz (2002), trade liberalisation, an offshoot of globalisa-
tion, is disastrous to the developing countries because the infant industries in
many of those countries cannot compete efficiently with the highly subsidised
industries in developed countries. Hence, the economic consequences of globali-
sation in developing countries are manifesting in terms of a myriad of inefficient
industries, job loss and welfare deterioration (Hartungi, 2006; Stiglitz, 2002,
p. 17; Ulaşan, 2015). In fact, Beri et al. (2022) argue that the effectiveness of
globalisation hinges on several factors such as gross capital formation, population
size and urban growth rate.
Several studies have been conducted to examine the nexus between globalisa-
tion and different indicators of economic development to unravel the extent to
which globalisation has promoted or harmed economies. Consequently, most of
64 Foreign Trade Review 59(1)
these studies have considered the impact of globalisation on economic growth
(Heimberger, 2021a), poverty (Anderson et al., 2018), inequality (Heimberger,
2020), government expenditure (Heimberger, 2021b), education (Triwiyanto &
Prasojo, 2019) and employment (Das & Ray, 2020; Näätänen, 2015). Most of
these studies are meta-analyses of the effects of globalisation and provide a com-
prehensive analysis of how globalisation has affected the aforementioned varia-
bles. The striking conclusion from these studies is that the effects of globalisation
on the variables vary or are at best mixed (Das & Ray, 2020; Heimberger, 2021a,
2021b; Triwiyanto & Prasojo, 2019). There are several reasons for such a devel-
opment. One of the reasons revolves around the measurement of globalisation,
which is related to determining the best variable to capture globalisation. This
becomes problematic because globalisation encompasses not only economic and
financial issues but also social and political issues (Dreher et al., 2008). Another
important factor is the use of different econometric approaches (Heimberger,
2020, 2021a, 2021b). The outcome(s) also depend(s) on whether the study is a
country-specific study or a panel study (Anderson et al., 2018).
This study contributes to the existing studies in two ways. Firstly, the study
examines the effect of globalisation on inclusive growth in African countries.
Like other studies, we employ the KOF globalisation index data developed
by Dreher (2006) and updated by Gygli et al. (2019) and Haelg (2020). As the
globalisation index comprises economic, political and social indices, we not only
apply the KOF aggregate globalisation index but also use the disaggregated data
on globalisation (i.e., economic, political and social). Thus, we examine the
effects of aggregated and disaggregated globalisation on inclusive growth in
Africa. Also, we focus on inclusive growth because inclusive growth has become
top on the agenda of many countries in Africa in recent times (UNCTAD, 2021).
This emanates from the fact that despite the growth recorded in the region
of Africa since the beginning of this millennium, inequality and employment
continue to rise unabated. Thus, it is important to focus on inclusive growth that
encompasses all segments of economic development that are associated with
social welfare. Only a few studies have taken this approach (Duttagupta et al.,
2018; Shahzad & Chaudhary, 2020). Duttagupta et al. (2018) developed a dynamic
stochastic general equilibrium (DSGE) model to ascertain the effect of globalisa-
tion on inclusive growth in Ghana while Shahzad and Chaudhary (2020) explored
the same subject matter for some selected Asian countries.
Second, we explore the moderating role of institutional quality in the
globalisation–inclusive growth nexus. The role of institutions cannot be underes-
timated in the workability of the economy of any country be it a developed coun-
try or a developing one. This has been identified in the works of Douglas North
and others such as Daron Acemoglu and James Robinson (North, 1989, 1991;
Acemoglu et al., 2005). According to Douglas North, institutions are sets of rules,
which could be formal or informal, that constrain human excessive behaviour and
thereby structure interactions among the agents. North submitted that throughout
the ages, institutions have been devised by human beings to ensure orderliness in
society and reduce uncertainty in transactions or exchanges. Acemoglu et al.
(2005) attributed the differences in economic growth and prosperity across the

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