Modelling the Policy Challenges Confronting Globalising Developing Countries

Abstract

The article models the policy challenges facing globalising developing countries. Models from the pure theory of international trade, the small open economy model, growth accounting, the Solow-Swan model, the gravity model, models of portfolio diversification and currency crises models are reviewed to distil policy guidelines to promote the globalisation of developing countries. The overriding objective of promoting the globalisation of developing countries is to reduce poverty and income inequality between and within countries. Pro- and anti-globalisers are currently locked in a heated controversy as to whether the latest wave of globalisation has bucked the past trend of increasing poverty and income inequality in developing countries. Anti-globalisers lament that protracted waves of globalisation have failed to extricate developing countries from the structural malaise that traps them in a vicious circle of poverty. They advocate the radical reshaping of the international financial architecture to make globalisation work for the developing countries by reducing their vulnerability to recurrent financial crises and crisis contagion. The article concludes by reviewing the geography and institution school research that offers new policy vistas for promoting globalisation in developing countries.