Working Paper: NBER ID: w16552
Authors: Jorge Braga de Macedo; Lus Brites Pereira
Abstract: This paper applies an interpretation of how globalization and governance (G&G) interact with convergence given Cape Verde and Mozambique's particular geographical and historical contexts. We hold that development success under globalization entails, necessarily but not exclusively, positive market perceptions regarding the orientation and predictability of policies as well as the accompanying institutional arrangements. As such, a positive G&G interaction with respect to a comparator group can usefully be defined as success notwithstanding the inexistence of a universally applicable development model. In practical terms, we first identify macro-level policy and institutional combinations underpinning successful trade diversification (an indicator of globalization) and income convergence (an indicator of governance) in the sub-regions of West and Southern Africa. We then assess to what extent these combinations apply to both countries using an empirical analysis. We find that trade openness drives convergence and export diversification in Western Africa (which is becoming more diversified) while convergence is instead driven by economic and political freedoms in Southern Africa (which is becoming more specialized). Our empirical analysis is complemented by a case-study narrative of Cape Verde and Mozambique's long-term development, which allows us to also identify the following common drivers: moving towards a market economy; opening up to regional and global trade; increasing economic and political freedom; pursing macroeconomic stability and financial reputation; ensuring policy continuity (especially in the industrial and trade sectors) and focusing on human development (especially education and poverty reduction). Moreover, both countries reveal convergence compared to their sub-regional peers when looking at average GDP per capita and indicators of financial reputation and good governance. While these findings are insufficient to conclude that convergence will be sustained, the positive interaction between trade and financial globalization, on the one hand, and good governance and democracy, on the other, may help explain the observed diversity of the Portuguese-speaking African community, which includes three other countries (Angola, Guinea-Bissau and São Tomé e Príncipe).
Keywords: globalization; governance; economic convergence; Cape Verde; Mozambique
JEL Codes: F12; F13; F15; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade openness (F43) | convergence (O47) |
| trade openness (F43) | export diversification (F29) |
| economic and political freedoms (P19) | convergence (O47) |
| governance quality (H11) | convergence (O47) |
| governance and trade policies (F13) | improved economic outcomes (O49) |