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1. Introduction

In the development literature the relationship between globalization and economic growth is
contentious. Liberals argue that globalization causes higher growth, providing trade and
investment opportunities for much needed employment generation thereby leading to
declines in income inequality and poverty levels. On the contrary, skeptics contend that
higher levels of globalization have adverse effects on domestic economy leading to
economic and social inequalities through negative effects on economic growth. Their main
argument is that globalization increases economic insecurity and risk, which may in turn
result in economic hardships. Thus, the question of whether globalization affects growth and
development in the less developed countries is yet to be analyzed properly. The main
objective of this paper is to examine the relationship between globalization and economic
growth in the low income African countries during the period 1970 - 2005. In doing so, we
consider the countries which are classified as “low income countries” under the World Bank
classification of country list. According to the World Bank, those countries whose per capita
GNI (as on 1st July, 2006) is equal or below US$935 are considered to be low income
countries. Accordingly, although we have 50 countries in the list, we could examine only 21
countries because of data constraints and are listed in Annexure 1 and also in Table 3.
Unlike previous studies using any one of the proxies for globalization e.g., foreign direct
investment, financial development, reforms, aid and so on, we use an index that aggregates
several factors that measures globalization along three important dimensions viz., economic,
political, and social dimensions. This index is the contribution of Dreher (2006) which is
perhaps the most comprehensive measure of globalization, and has the potential to reduce
the controversy on the measurement issues1. His measure uses the principal components
method to combine several variables from the economic, political and social sectors and
updated every year. In one of his studies, Dreher has shown with conventional panel
techniques and panels of five-year averages that the growth affects of his measures of
globalization are significant, implying that countries with higher globalization grow faster.
Similarly, using Dreher’s index, Rao et al. (2009) by extending the Solow (1956) model
derived country specific estimates of the Steady State Growth Rates (SSGRs hereafter) for

1 These indices can be downloaded from http://globalization.kof.ethz.ch/



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