Globalization, the Structure of the World Economy and Economic Development

Globalization, the Structure of the World Economy and Economic Development

 

 

How does the structure of the world economy determine the gains from participation therein? Does globalization alter that relationship? In order to answer these questions, we conduct a state of the art network analysis of international trade to map the structure of the international division of labor (IDL). We regress cross-national variation in economic growth on positional variation and mobility of countries within the IDL from 1965 to 2000. Our findings indicate that structure plays an extremely important role in the development trajectory of nations. Specifically, we find that the highest rates of economic growth occurred to countries in the middle of the IDL over the course of globalization. Second, we find that upper tier positions in the IDL are converging vis-à-vis each other, but diverging vis-à-vis the lower tier. Thus, finally, we show that the mechanism underlying the rapid economic growth in intermediate positions was their uniquely high rates of upward mobility, in turn a function of their middling position. Taken together, these findings suggest that a country’s long-term economic development is conditioned to a large extent by its position in the IDL. We close by calling for new directions in the debate on the impact of globalization on economic growth in the world-economy.

 

One of sociology’s most significant historical and contemporary contributions to the social sciences lies in the basic insight that social structure—the concrete relations between social actors—plays a causal role in shaping the life experiences of actors therein (Durkheim 1997; Granovetter 1973; 1985; Marx 1977; Weber 1978). In the sociological study of the wealth and poverty of nations, there has been no bigger structural intuition than that of world-system theory. Paraphrasing a major theme from this approach, a “country’s world-system position, in a macro-structural sense, is considered the key determinant of the society’s capacity for sustained economic growth and development” (Crowly, Rauch, Seagrove and Smith 1998:32). The key relational insight is that the world-system is composed of a “single ongoing division of labor…based on differential appropriation of the surplus produced [such that] positions are hierarchically ordered, not just differentiated” (Evans 1979b: 15-16). For nearly two decades after its emergence in the mid-1970s the world-systems perspective dominated the sociological study of economic development.

In spite of previous work that found support for the notion that world-system position is positively associated with economic growth (Nemeth and Smith 1985; Snyder and Kick 1979; Kick et. al. 2000; Kick and Davis 2001), their is a high degree of skepticism about the saliency of social structure as a determinant of development over the course of globalization. One of the more important reasons for this skepticism may be that the purported key empiric one would expect given the existence of a world economic structure that causes differential appropriation—rising global income inequality—doesn’t square with a significant portion of the empirical evidence (eg. Firebaugh 2003; cf. Milanovic 2005).

Indeed, many use the results of recent empirical work on global income inequality to suggest that changes associated with economic “globalization” are creating a world order in which a country’s role in the structure of the of the world economy no longer matters for economic development. Robert Wade (2004) paraphrases this contention as “…country mobility up the income/wealth hierarchy is [no longer] constrained by the structure” (567). An extremely popular and influential version of this perspective argues that there globalization “flattens out” the world and leads to economic dynamism everywhere, and particularly in the poorest regions (Friedman 2005). In short, globalization leads to rapid economic development in the periphery, resulting in worldwide convergence in per capita output and incomes during the late twentieth and early twenty-first centuries.

As a point of departure, we argue that studies of global income inequality, while informative, are ill suited to understanding how the structure of the IDL impacts development. In contradistinction, we revisit classic hypotheses regarding the distribution of economic rewards across the structure of the international division of labor. Empirically, we conduct a state of the art network analysis that allows us to map the structure of the international division of labor on a large sample of countries across a fairly long temporal range, and examine the relationship between a country’s position and mobility in that structure and their subsequent growth trajectory. The results indicate that structure matters in very significant ways. In particular, intermediate positions in the international division of labor had significantly higher growth rates than other positions, which in turn is a function of their greater degree of structural mobility.

Our findings highlight the contingent nature of economic development, and suggest that recent studies showing convergence in terms of income shares are also consistent with persistent stagnation in the lowest positions of the IDL. They challenge some contemporary views of economic “globalization” that posit the structure of the world-economy no longer conditions development processes, as well as those that see globalization as intensified exploitation of non-core countries. The paper concludes that the patterns we find have implications for development theory and development policy. Ultimately, we argue that our results warrant a fresh look at the structural contingencies that lead to growth and stagnation across the structure of the world-economy.

ENHANCING WELFARE OR ENTRENCHING HEIRARCHY? THE INTERNATIONAL DIVISION OF LABOR, ECONOMIC GROWTH AND UPWARD MOBILITY

The story of winners and losers in the IDL remains an important and hotly debated topic in the social sciences. In recent years the debate is often cast in terms of macro-level trends in global income inequality. Readers of social science literature on trends in “total world inequality” are confronted with two distinct and contrasting views: The first is that inequality increased over recent years (Dowrick and Akmal 2005; Kickanov and Ward 2001; Bourguignon and Morrison 1999; 2002; Chotikapanich, Valenzuela and Rao 1997; Jones 1997; Korzeniewicz and Moran 1997; Pritchett 1997). A second body of literature reaches a very different conclusion, claiming that global inequality leveled off by the end of the 1990s, and is now beginning to decrease, in spite of rising within country inequality (Bhatta 2002; Firebaugh 2003; Firebaugh and Goesling 2004; Goesling 2001; Melchior and Telle 2001; Sala-I-Martin 2002; Schultz 1998).

One of the reasons for these contradictory findings is the inherent difficulty in obtaining valid estimates of individual income cross-nationally, coupled with the methodological challenge of approximating the person-to-person income distribution with state level aggregate data. Thus, Milonovic (2006) asserts that previous attempts at measuring “total world inequality” should be “considered ‘tatonnements,’ groping for the global distribution” (6). In addition to the methodological challenge of measuring global income inequality over time, its relevance to the question of how the world-economic structure impacts development outcomes is also in question because of the fact that one country—China—accounts for nearly all of the decreased inequality observed in studies that find a leveling / falling trend.[1] In other words, the sensitivity of measures of contemporary global inequality to China’s rapid economic growth make these indices less relevant to understanding how the world-economy impacts development outcomes for less developed countries in general because China’s unique characteristics set it apart from the rest (Dowrick 2004). Moreover, there has been no discussion to our knowledge of the role that China’s structural position may have played in its exceptionalism.

While the debate about world inequality may be of interest in and of itself, an important underlying issue is an old, very basic, one in comparative sociology and political economy: How does the structure of the world-economy impact economic development and the wealth / poverty of nations? The key point of contention revolves around two views of the role that the international division of labor plays in the development of individual countries. As Peter Evans (1995) argues, “the international division of labor can be seen as the basis of enhanced welfare or as a hierarchy” (7).

The “enhanced welfare” view claims that any one particular role in the IDL is not necessarily better than another, but rather that “compatibility with [a country’s] resource and factor endowments defines the activity most rewarding for each country” (Evans 1995: 7; also see the classic treatments of Ricardo [1817] 2004; Smith [1776] 2003). This view informs classical economic growth models that predict “absolute convergence” across countries, as the returns to capital tend to diminish over time in capital-intensive wealthy economies. Absolute convergence implies an inverse relationship between initial levels of GDP per capita—the average ratio of capital to labor—and subseqent economic growth across countries (Barro and Sala-I-Martin 1995; Solow 1956; Swan 1956).

Empirically, absolute convergence does not mesh well with observed growth trends across countries, which betray no negative bivariate correlation between initial levels of income and economic growth. Thus economic growth theory focuses instead on the idea of “conditional convergence” (Barro and Sala-I-Martin 1995; Islam 2003). In the context of cross-sectional regression, conditional convergence materializes when initial levels of GDP per capita have a negative relationship to subsequent growth only after controlling for variables that would be highly correlated with a variable that captures a country’s position in the IDL, such as measures of physical and human capital, levels of technology, certain types of institutions and so on (Barro and Sala-I-Martin 1995). Holding these crucial variables constant, studies find that poorer countries grow faster than wealthier ones (Barro and Sala-i-Martin 1995; Islam 2003).

The “enhanced welfare” position contrasts sharply with global political economy arguments that development outcomes vary by a country’s position in the IDL (Chase-Dunn 1998; Galtung 1971). Indeed, the world-system perspective argues that the IDL conforms to hierarchically stratified zones with divergent types of production occurring across the various zones: “Core production is relatively capital intensive and employs skilled, high wage labor; peripheral production is labor intensive and employs cheap, often politically coerced labor” (Chase-Dunn 1998: 77). In turn, they argue that core positions “generate a ‘multidimensional conspiracy’ in favor of development,” while peripheral ones do not (Evans 1995: 7). Thus, while the conditional convergence hypothesis attempts to “hold constant” certain factors that vary between countries such as position in the IDL, others argue that cross-country differences in these factors cause divergent growth patterns between countries.
Structure and Growth: Some Hypothetical Relationships

With respect to empirical expectations regarding the association between position in the IDL and economic growth, the “enhanced welfare” view presents a simple null hypothesis: if the structure of the international division of labor is simply “differentiated” rather than hierarchically organized, we would expect that cross-national variation in structural location should not be a significant predictor of economic growth. On the other hand, the world-systems perspective offers two distinct hypotheses corresponding to different phases in the cycles of world-economic expansion and contraction. The first is a linear hypothesis—the core grows faster than the semiperiphery and the periphery, and the semiperiphery grows faster than the periphery.

The world-systems perspective is also consistent with a non-linear hypothesis—the semiperiphery grows faster than both the core and the periphery—corresponding to a particular phase in long term Kondratieff cycles of world-economic expansion and contraction (Wallerstein 1976). During world-economic upswings—Kondratieff A phases—core countries reap the benefits of an expansionary economy and the association between position in the IDL and economic growth is linear. However, Wallerstein suggests that the world-economy entered a down turn—and Kondratieff B phase—circa 1967, during which there was a “shift in relative profit advantage to the semi-peripheral nations” (Wallerstein 1976: 464; 1998). According to Wallerstein’s depiction of Kondratieff B phases, select countries in the semiperiphery become the beneficiaries of the relocation of global industries to non-core countries. In other words, the B phase represents the greatest possibility for growth owing to the greater openness of the system to the flow of mature technologies out from the core.

In sum, there are three competing claims made the relationship between the IDL and development. The first contrasts the “enhanced welfare” view with the “hierarchy view,” where the former argues that all roles in the IDL are conducive to growth and the latter argues that only “core-like” positions are. These claims can be summarized with the following hypotheses:

Hypothesis 0: The structure of the IDL has no effect on economic growth, such that growth will be the same across positions of the IDL. Hypothesis 1: The structure of the IDL has a positive effect on economic growth, such that core growth exceeds that in the semiperiphery, and semi-peripheral growth exceeds that of the periphery. Finally, the non-linear claims can be summarized with Hypothesis 2: The structure of the IDL benefits countries in the middle during times of economic downturn and industrial migration, such that semi-peripheral growth exceeds that of both the core and the periphery.

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