CYRUS CHRONICLE JOURNAL (CCJ) – Volume 1 – May

Transcription

CYRUS CHRONICLE JOURNAL (CCJ):
Contemporary Economic and Management Studies in Asia and Africa
An imprint of Cyrus Institute of Knowledge
http://www.cyrusik.org/
May 2016
Table of Contents
Editor’s Introduction...................................................................................................................................................... v
Asgary H. Nader, A Perspective and Summary on the “Role of Institutions in Sustainable and Socially Equitable
Development,” at the CIK 2015 conference at Harvard University. ............................................................................. 1
Walle, Alf H., “Ethnic Distinctiveness and Strategic Choices: Fostering Harmony in the Middle East and
Neighboring Regions” ................................................................................................................................................... 5
Bahmani-Oskooee, Mohsen and Bahmani Sahar “The Rial-Dollar Exchange Rate and the Purchasing Power Parity”
..................................................................................................................................................................................... 18
Chu, Hsiao-Ping; Chang, Tsangyao; and Sagafi-nejad, Tagi, “Globalization and economic growth revisited: A
bootstrap panel causality test” ..................................................................................................................................... 24
Farooqi, Hamidullah and Asgary, H. Nader, “Natural Resources and Economic Development: Case of Afghanistan38
Saraswat, Satya Prakash, “Information Technology in the Global Strategy of a Multinational Bank from an
Emerging Economy” ............................................................................................................................................... 51
Ganideh, Saeb Al., “Reintegrating Iran with the West: Challenges and Opportunities” edited by Mohammad N.
Elahee, Farid Sadrieh and Mike Wilman, Emerald ..................................................................................................... 62
Morin, Jasmine, “The Globalization of Inequality” by Francois Bourguignon. .......................................................... 65
McIntire, Ellen, Office of Ethics and Compliance Raytheon Company, “Business Ethics, A Stakeholder & Issues
Management Approach, by Joseph W. Weiss. ............................................................................................................ 68
Announcements:
 CIK 2016 Conference – March, 14-17, 2016, American University in Cairo, Egypt
 CIK 2017 Conference – March, 20-23, 2017, Harvard University, Cambridge MA, USA
 Guidelines for submission to CCJ
ii
CCJ, V. 1, No. 1- May 2016
The flagship journal of the CYRUS Institute of Knowledge
===========================================================================================================
Purpose:
THE CYRUS CHRONICLE
JOURNAL (CCJ)
Editorial Board
Editor: Tagi Sagafi-nejad,
Professor Emeritus,
Loyola University Maryland, USA
Nancy Black Sagafi-nejad,
Assistant Editor
Editorial Advisory Board:
Sousan Abadian, Ph.D., Massachusetts
Institute of Technology, USA
Abdelwehab Alwehab, Ph.D.,
University of Baghdad, Iraq
Nader Asgary, Ph.D.,
Bentley University, USA
The CYRUS Institute of Knowledge (CIK) Journal is a refereed interdisciplinary journal. The editorial
objective is to create opportunities for scholars and practitioners to share theoretical and applied
knowledge. The subject fields are management sciences, economic development, sustainable growth, and
related disciplines applicable to the Middle East, Central Asia (MENA) and North Africa. Being in
transitional stages, these regions can greatly benefit from applied research relevant to their development.
CCJ provides a platform for dissemination of high quality research about these regions. We welcome
contributions from researchers in academia and practitioners in broadly defined areas of management
sciences, economic development, and sustainable growth. The Journal’s scope includes, but is not limited
to, the following:
Business Development and
Governance
Entrepreneurship
Ethics and Social Responsibility
International Business and Cultural
Issues
International Economics
International Finance
Innovation and Development
Reza Askari Moghadam, Ph.D., Tehran
University, Iran
Institutions and Development
Leadership and Cultural Characteristics
Bulent Aybar, Ph.D., Southern New
Hampshire University, USA
Mohsen Bahmani-Oskooee, Editor,
Journal of Economic Studies, The
University of Wisconsin-Milwaukee,
USA
Natural Resources and Sustainable
Development
Organization and Cultural Issues
Strategy and Development
Women and Business Development
Gabrielle Bedewi, Ph.D., Former
Global Segmentation Leader, Nielsen,
USA
Authors are responsible for the views expressed and the accuracy of the facts provided. Authors’ opinions
do not necessarily reflect the position of the CYRUS Institute of Knowledge, the Editor, or the Editorial
Advisory Board of CCJ.
Nada Nasr Bechwati, Ph.D.
Editorial Advisory Board Members:
Mansour Farahani, Ph.D.,
Harvard University, USA
Farok Contractor, Ph.D.,
Rutgers University, USA
Maling Ebrahimpour, Ph.D., University
of South Florida, USA
Ahmad Etebari, Ph.D.,
University of New Hampshire, USA
Hamidullah Farooqi, University of
Kabul, Former Cabinet Member,
Afghanistan
Bahram Grami, Ph.D.,
Author and Editor, USA
Fariborz Ghadar, Ph. D.,
Penn State University, USA
Professor Tagi Sagafi-nejad is the editor of CCJ. Dr. Sagafi-nejad is ex-editor of International Trade
Journal, the author, in collaboration with John Dunning of The UN and Transnational Corporations: From
Codes of Conduct to Global Compact, (2008) and “The Evolution of International Business Textbooks”
(2014). He was the Radcliffe Killam Distinguished Professor of International Business, founding Director
of the PhD Program in International Business, and Director and Center for the Study of Western
Hemispheric Trade at Texas A&M International University (2003-2013). Dr. Sagafi-nejad is well-known
internationally and has outstanding credentials to develop The Cyrus Chronicle into a high quality
publication. He will be assisted by an editorial board consisting of distinguished members from world-class
institutions of higher learning, practice and industry.
Submission Process:
We invite authors to submit their papers and case studies to Editor@Cyrusik.org. We will have a quick
turn-around review process of less than two months. We intend to begin with two issues per year
consisting of about 5-8 papers and case studies per issue. The first issue is being planned for the fall of
2015. A selected number of papers submitted to the CIK conference will be double-blind reviewed for
inclusion in THE CCJ. We intend to have special issues on themes that are within the scope of Journal.
Also, we will have invited guest issues.
Tarek Hatem, Ph.D., American
University in Cairo, Egypt
THE CCJ: An imprint of the CYRUS Institute of Knowledge (CIK)
Background:
Shahriar Khaksari, Ph.D.,
Suffolk University, USA
Noomen Lahimer, Ph.D.,
University of Carthage, Tunis
Tatiana Manolova, Ph.D.,
Farhang Niroomand, Ph.D., University
of Houston, USA
Emerson Maccari, Ph.D. Uninove
University, San Paulo, Brazil
Massood Samii, Ph.D., Southern New
Hampshire University, USA
Jahangir Sultan, Ph.D.,
Alf H. Walle, Ph.D.,
University of Alaska, USA
This is a historical time for the mentioned regions, and The Cyrus Chronicle intends to offer what is most
urgently needed. There is no question that organizations and businesses that are capable of analyzing and
applying advanced knowledge in management sciences and development are in high demand, and
especially during transitional periods. It is an unusual time in the target regions and the world, a time
which requires active intellectual participation and contributions. It is the era of revolution in terms of
communication, technology and minds for billions of people. It is a time for intellectuals, entrepreneurs,
and philanthropists to help enlighten minds and therefore enrich the quality of life for millions. It is a time
to focus intensely on the regions’ historical characteristics, achievements, human and natural resources, and
its significant deficit in development, management sciences, and democracy. CIK’s vision, “to cultivate
the discourse on human capital potentials for better living,” is the appropriate response to current
challenges, and the journal is a platform for sharing the perspectives of scholars and practitioner with a
wider audience.
CYRUS associates tend to have a foot in two worlds. First, most of the associates possess a wealth of
intellectual and experiential knowledge which is enhanced by their active involvement in business,
consulting and scholarly research and collegiate teaching. Second, some associates are sons and daughters
of the affirmation regions and possess an ethnic identity, language skills, and the insights only embraced by
insiders. Third, most of the CIK board of directors’ members and associates are well-known scholars,
members of editorial boards of journals, and even editors. CYRUS possesses depth, breadth, and a
competitive edge to successfully manage chronicle.
CYRUS is committed to developing knowledge that positively contributes to the life of the world citizens,
especially, the target regions. CIK is a charitable, educational, and scientific organization that has been in
operation since 2011. It is a secular and nonpartisan organization that has many scholars and practitioner
as member.
Joseph Weiss, Ph.D., Bentley
University, USA
Willem-Jan van den Heuvel, Ph.D.,
Tilburg University,
The Netherlands
For more information on the Institute, please contact: Editor@Cyrusik.org; Sagafinejad@loyola.edu;
Nasgary@Cyrusik.org. CYRUS Institute of Knowledge (CIK), Box 380003, Cambridge, MA 02238-0003,
USA
Constantine Vardavas, Harvard
University, USA
iv
CCJ, V. 1, No. 1- May 2016
Editor’s Introduction
Welcome to the premier issue of Cyrus Chronicle Journal (CCJ): Contemporary Economic and
Management Studies in Asia and Africa. The journal intends to cover scholarship pertaining to the two
vibrant and rapidly growing continents, Asia and Africa. They tend to be either ignored or misunderstood;
and there are limited outlets for scholars who work on these countries to share their scholarly outputs.
Focusing on these two continents will help researchers from both developed countries as well as these two
continents - which together account for the largest portion of the world population and growth. The CCJ
intends to fill these gaps. An examination of our mission may shed some light on this question. The
primary purpose of the journal is four-fold:
1. To share and promote knowledge of economic, management, and development issues facing countries
of Asia and Africa. Focusing on assessment, evaluation, and possible solutions help advance countries
in this two continent which has the largest world habitants. Development challenges are global;
virtually every country faces problems concerning economic development, sustainability, food and
water, population and environmental degradation. Yet no country gains by shunning opportunities that
globalization can provide, with the possible exception of a few countries whose leaders lack a full
understanding of the opportunities that globalization can offer. To take advantage of such
opportunities, knowledge is the primary requisite. And this journal aspires to make a contribution to
this body of knowledge.
2. To encourage the generation and dissemination of knowledge by local scholars whose access to
mainstream academic outlets may be limited? We know many scholars from academic, public and
private sector organizations whose first-hand knowledge of problems and solutions isn’t being shared
for lack of an appropriate outlet for dissemination. The CCJ may provide an opportunity for spreading
such knowledge.
3. To focus on countries that span the northern band of Asia – from China to Turkey – to the northern tier
of Africa, areas that have not previously been the subject of much attention. In the past these countries
have tended to gain the attention of scholars and the media only in times of manmade or natural crises.
But in fact, these nations have many challenges similar to those of others. They wrestle with shortages
of food and water and the growth of population and pollution. Although they have educated their own
citizens, especially in countries that had been under the shackles of dictatorship for decades, now they
have become freer to express ideas in journals such as this.
4. Academic scholarship emanating from the region under the journal’s coverage tend to get lost in the
academic jungle where the pressure of “publish or perish” leaves behind the younger and less
experienced members. This journal will give an opportunity to the scholars with first-hand knowledge
of these areas to publish their research and thereby make important contributions to the management
and development body of scholarship on which the journal will concentrate. We need to know more
about these topics in countries such as Afghanistan, Kazakhstan and Tunisia as well as other countries
covered by this journal. The CCJ will provide a platform for established as well as younger scholars
who might collaborate with them in their research.
On the journal’s operational side, we want to make the publication more accessible to a wide audience
across the world, and so, consistent with the 21st century trend toward electronic media, we will publish
this journal online. To maintain rigor and originality, articles submitted to the journal will undergo the
standard blind review process. Reviewers’ anonymous comments are shared with authors, as appropriate.
Submission
guidelines
and
procedures
are
http://www.cyrusik.org/research/the-cyrus-chronicle/.
delineated
on
the
journal’s
website
As the first editor of the journal, I am pleased and proud to accept this challenge. I bring some experience;
my first editorial assignment was as an undergraduate at then Pahlavi University in Shiraz, Iran, a top
ranking institution in the region. A few students and I founded and published Danesh-Pajouh (knowledge
seeker). In those days when freedom of expression was severely limited, we managed to publish one issue
in March 1965 before the censors put a stop to the enterprise.
Years later, while directing a doctoral program in international business in Texas in the early 2000s, I
also was the co-editor - and eventually editor - of the International Trade Journal (ITJ) until my
retirement in 2013. Under my leadership ITJ acceptance fell below 10%.
As editor of the CCJ, I hope to accomplish the goals of the journal elucidated above. In the premier issue,
we have already reached a threshold of about 20% in acceptance. Still, CCJ needs your support and so I
ask for your help in the following ways:
1.
2.
3.
4.
5.
Contribute articles;
Encourage your colleagues to do the same;
Spread the word, especially in countries where CCJ can be most effective;
Cite the articles published in this journal in your own research when applicable;
Attend the annual conferences of the CIK (http://www.Cyrusik.org) that serve as a spawning ground
for articles that may ultimately be published in this journal;
6. Give us your feedback by telling us how we can further promote and improve the journal?
Welcome and thank you.
Tagi Sagafi-nejad, Editor
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CCJ, V. 1, No. 1- May 2016
Role of Institutions
Nader H. Asgary
Role of Institutions in Sustainable and Socially Equitable Development*
between rival institutions, however, emerged as
the catalyst for positive change.
Strategies of response are also powerful
institutions. Nonviolent methods for advancing
social, economic, and legal equity (as developed
by leaders such as Henry David Thoreau, Gandhi,
Martin Luther King, and Nelson Mandela) are
embraced by millions of people. Unfortunately,
an opposite institution based upon violence,
intimidation, and social tension also exists. In
many parts of the world (including the Middle
East, North Africa, and Central Asia) these two
institutions compete for the loyalty of the people.
Lin and Neugent (1995) defined
institutions as “A set of humanly devised
behavioral rules that govern and shape the
interaction of human beings, in part by helping
them to form expectations of what other people
will do.” The emphasis is on “humanly devised
behavioral rules” and “form expectations of what
other people will do.” Thus institutions are the
rules of the game that shape human interaction.
An expanded view recognizes that institutions “are
systems of established and prevalent social rules
that structure social interactions [including]
Language, money, law, systems of weights and
measures, table manners, and firms…” (Hodgson,
2006).
Although some scholars offer more
complex views of social institutions, (Aoki 2001;
Crawford and Ostrom 1995), focusing upon rules
will suffice for this short discussion.
Overt and/or covert rules often exert
multiple impacts and become controversial as a
result.
The United Nations Millennium
Development Goals, for example, encourages
social institutions that are designed to eliminate
crushing poverty worldwide. Although doing so is
not controversial, certain tactics can trigger hostile
responses. Advocating educational opportunities
for girls, for example, can be threatening to those
who adhere to a strict division of the sexes and
tightly defined vocational options that are based
upon gender. The resulting tension has resulted in
violence, including the attempt by the Taliban to
Nader H. Asgary
Cyrus Institute of Knowledge, President
Professor of Management and Economics,
Bentley University, Waltham, MA 02452, USA
INTRODUCTION
The objective of this brief communication is to
start a conversation about critical role that
institutions play for sustainable development and
how each of us as can assist with the development
and nurturing of institutions. Our goal is to
nurture equitable and sustainable economic and
social development. There is so much to be done,
especially when change triggers violence and
tension among those who feel threatened by
progress. Cyrus Institute of Knowledge (CIK)
offers positive and constructive alternatives to
such horrific and counterproductive responses.
CIK is an educational and scientific secular and
nonpartisan institute, dedicated to peace,
cooperation, harmony, and nonviolence. CIK’s
mission and values are shown in the banners put
up in this conference. While here I touch upon a
few issues, there are interesting papers in the
conference which will analyze many issues indepth.
*Presented at CIK Conference, Harvard University, April 2426, 2015.
WHAT ARE INSTITUTIONS?
Social institutions contribute to the problems faced
as well as their solutions. This is true because
institutions provide the rules and guidelines that
people live by. As we know, different beliefs,
traditions, and ways of life often conflict with each
other in ways that lead to tension,
misunderstanding, and even violence. In the
United Stated during the 1960s, for example, the
rival institutions of racial segregation and
integration opposed each other. The conflict
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CCJ, V. 1, No. 1- May 2016
Nader H. Asgary
murder Malala Yousafzai because she was a
strong advocate for women’s rights.
The kidnapping of school girls in order to
turn them into concubines and wives for
traditional men is another horrific example of
proponents of one institution (a hyper traditional
culture) violently opposing its rival (social
change).
to different degrees.
The challenge is for
developing countries to develop and gets buy in
from stakeholders in implementing these
institutions. By merging these institutional factors
into the concept of development, we shall evolve
with fundamental aspects of sustainable
development and civil society. The big problem,
as we saw above, however, is the fact that
different institutions often compete. How can
positive cooperation exist in such an arena? The
point is that as long as people are creative and
cooperative, modern business methods can be
adjusted to mesh with a wide variety of social,
ethical, and beliefs institutions.
Dani Rodrik (2008) in One Economics, Many
Recipes: Globalization, Institutions, and Economic
Growth affirms that institutions provide the rules
that coordinate people, communities, and
organizations.
Institutions can also create
regulations and/or checks and balances that
encourage fairness. In this way, institutions can
foster stability and sustainability.
Rodrik stated that markets need
institutions because they are not self-correcting,
self-regulating,
self-stabilizing,
or
selflegitimizing. Therefore, institutions are needed to
set some rules. And the market institutions are
embedded in a set of nonmarket institutions; he
asked questions such as “do institutions matter? If
yes, which institutions matter? Here are some of
them that he has highlighted:
UNIVERSAL PERSPECTIVES
According to 1998 Nobel prize winner, Amartya
Sen, freedom means the removal of major sources
of poverty, discrimination and inequalities and
other public or private discrimination. He states
that positive social and economic development is
accelerated by the promotion of human rights such
as freedom of the press, freedom of speech, and
the right to assemble because these rights foster
honesty in governmental institutions. Malcolm
Gladwell, who is the author of bestselling books
such as David and Goliath, Tipping Point, Blink,
Outliers, and other manuscripts recent argued that
“People will obey authority when people feel that
authority is acting legitimately,” and when you
increase penalties, you undermine the legitimacy
of the system.
Ultimately, social institutions are the
backbones of democracy and the social equity
upon which it is based. The creation of fair,
balanced, and transparent economic opportunities
for all citizens, furthermore, encourages the
establishment of a balanced and thriving society
and institutions ensure its sustainability.
THE REGIONS AND THEIR CHALLENGES.
The Middle East, North Africa, and Central Asian
faces a wealth of issues that hold progress back.
In a (2013) World Bank report under the title of
“Regional Economic Integration in the Middle
East and North Africa” Mustapha Rouis and
Steven Tabor (2013) reported that.
1. The MENA region has 5.5% of the world’s
population, but only has 3.9% of the world’s GDP.
1. Provide “rules of the game” of economic life
such as property rights which is underpinning of a
market economy.
2. Improve coordination within and across
citizens, communities, organizations; having
clearer expectations of what other people will do.
3. Restrict coercive, fraudulent and anticompetitive behavior; by creating regulations;
through checks and balances within a democratic
process.
4. Provide access to opportunities for the broad
population.
5. Constrain the power of elites and managing
conflict.
6. Provide social insurance such as health benefits
and unemployment benefits.
7. Provide predictable macroeconomic stability
such as implementing monetary and fiscal policy
that at its core aims sustainable economic growth.
All democratic societies have addressed
most aspects of the above fundamental institutions
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CCJ, V. 1, No. 1- May 2016
Nader H. Asgary
2. People in the region want to work, but
institutional barriers prevent it. This has resulted
in a crippling regional brain drain.
The United Nations refugee agency,
UNHCR, reported recently that out of the 51.2
million people displaced by 2014, half of them are
children, many of whom were caught up in
conflicts or harassments, the highest figure of
displaced people since World War II. This is a
tragedy and its consequences will be felt for
generations.
3. Economic activities are not adequately
diversified with oil production dominating,
4. Institutionalized constraints on economic
competitiveness is a fundamental problem (World
Bank 2013).
The following problems and challenges are
recognized and require serious attention:
AN ENVIRONMENT FOR CHANGE
In the Middle East, North Africa, and Central
Asia, people are demanding rights, dignity, social
equity, and respect. The biggest challenge facing
moderate citizens is the lack of fully functioning
democracies. The missing link, furthermore, is
education and that is where CIK is aiming to
advance.
Although this region possesses
enormous natural resources, most of its countries
rank towards the bottom on human development
indexes.
To make matters worse, their
competitiveness is undercut by a chronic brain
drain.
Joseph Nye, Harvard University Professor,
states that in the Middle East, “you're seeing
religious divisions, state divisions, and non- state
groups all battling. And essentially, in that kind of
a situation, there's going to be a lot of fluidity in
terms of what alliances - temporary coalitions are
going to happen…[the United States] is not going
to be able to run that any more… And it takes two
or three decades for these things to work
themselves through. So will we be involved with
one group and then another group and the enemy
of my enemy and so forth? I think yes.” (CNNFreed Zakaria, GPS, 3/8/15).
Unfortunately, the future of the region is
uncertain because members of the younger
generations demand a better quality of life,
dignity, and a more representative form of
government. Achieving these goals will take time
and needs education and institutions building.
Above assessment, what we hear on the
news, and what is truly happening in the regions
are sad and depressing; it is beyond words to
explain it. At least, there are two opposite
responses, a) hear the daily depressing news and
move on with our personal life, b) articulate and
initiated activities that can have a positive impact
on the event, as least in the long –run. Our aim at
CIK is the latter.
1.
2.
3.
4.
5.
6.
7.
8.
High unemployment rates,
Low female labor force participation rates,
Low levels of private sector development,
Weak public sector and corporate governance,
Bloated and inefficient public sectors,
Pervasive corruption,
Weak and limited infrastructures,
Low entrepreneurial activities (O’Sullivan and
Galvez 2012)
In this regard, O’Sullivan and Mendez (2012),
Jeffry Sachs (2004) and others suggest that
strategies to promote inclusive economic growth
and employment should be embraced. They
propose:
1. Improving governance, transparency, rule of
law, accountability, and citizen participation in
economic life,
2. Increasing social and economic inclusion,
3. Supporting private sector, particularly SMEs
and entrepreneurial activities aiding job
creation, and developing human capital.
4. Fostering regional and global integration to
reap the benefits of globalization.
These strategies must rely upon strong social and
economic institutions that are supported by a
strong and educated workforce. These institutions
ultimately set the “rules of the games” that lead to
sustainable development and is our generation
challenge and responsibility.
SUMMARY
Social and economic development that is
accepted by insiders and outsiders alike must be
based on practical principles along with a
culturally competent focus. The CIK is poised to
provide leadership in both regards. The CIK
mission involves nurturing and supporting
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CCJ, V. 1, No. 1- May 2016
Nader H. Asgary
scholars, visionaries, and practitioners so they can
contribute to the regions in positive and
constructive ways that benefit all.
CIK seeks “Win-Win” situations, not a
“Zero-Sum Game”. By offering equitable and
culturally sensitive options, tensions can be more
effectively abated and true progress can be given
the best chance of success. CIK is in a unique
position to accept a leadership role in this regard
which summed up as “advancement of human
capital”.
Those of us who are here today believe, act, and
represent progressive views regarding human
rights, personal dignity, and equal opportunities.
We are equally respectful of local cultures and
traditions as well as the social equity they deserve.
This culturally competence, coupled with
business, economic, and social expertise, provide
CIK with a unique ability to help strengthen
regional institutions in equitable and productive
ways. I look forward to working with you in this
regard. Thank you!
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CCJ, V. 1, No. 1- May 2016
Developing Appropriate Economic Strategies
Alf. H. Walle
Ethnicity in the Middle East and Neighboring Regions: Developing
Appropriate Economic Strategies and Policies.
Alf. H. Walle
University of Alaska at Fairbanks
alfwalle@yahoo.com
Abstract
Indigenous people and ethnic minorities face economic and
social pressures that potentially disturb the social order, undercut
cooperation, and spawn distrust. Such pressures can threaten
prosperity, peace, and security for all. Strategies are needed that
help distinctive groups gain parity, self-determinism, and
sustainability. Supplementing neoclassical economic models
with more socially relevant paradigms (such as substantive
economic anthropology and the triple bottom line) are means of
doing so. Regions ethnic groups are showcased to demonstrate
to value of such an approach.
Keywords: Indigenous people, ethnic minorities, Berber, Kurds, Kuchi,
Triple Bottom Line, anomie, cultural stress, mitigation, neoclassical
economics, substantive economics.
INTRODUCTION
Increasingly the universal models provided by mainstream
economics and management are being supplemented by more
culturally specific perspectives.
Such developments are
especially useful in an era when mainstream businesses are
expanding their operations into hinterland regions such as those
that exist in the Middle East, North Africa, and Central Asia.
Culturally appropriate strategies need to (1) resonate from the
distinctiveness of local cultures and populations (2) while
recognizing differences between the goals of the “mainstream”
world and those of ethnic enclaves. This paper offers useful and
actionable suggestions in this regard. Many conventional
business practitioners and theorists, however, tend to
deemphasize the distinctiveness of atypical circumstances or
social groups in order to focus upon universal strategic principles
that can be routinely applied in an endless assortment of
situations. Although doing so offers greater efficiency, focusing
upon generic “one size fits all” strategies and responses is often
inappropriate when dealing with unique peoples who harbor
idiosyncratic agendas and/or face unusual challenges. Many
conventional business practitioners and theorists, however, tend
to deemphasize the principles that can be routinely applied in an
endless assortment of situations. Although doing so offers
greater efficiency, focusing upon generic “one size fits all”
strategies and responses is often inappropriate when dealing with
unique peoples who harbor idiosyncratic agendas and/or face
unusual challenges.
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CCJ, V. 1, No. 1- May 2016
Alf. H. Walle
Embracing the principles of neoclassical
economics, for example, mainstream advisors
tend to view business decisions with reference to
some sort of cost benefit analysis involving (1) the
level of monetary risk or commitment that must
be tolerated (2) in order to achieve an anticipated
goal. Viewing these processes as universal, the
neoclassical paradigm can easily overlook areas of
distinctiveness that need to be recognized and
addressed. The harmful implications of carelessly
employing neoclassical economic models are
discussed in a later section of this paper.
Building upon cultural understanding,
advocates of social sensitivity often transcend
universal tactics in order to respond to the specific
goals, needs, and vulnerabilities of particular
peoples. Doing so can help facilitate equitable
collaboration and cooperation between indigenous
populations and outsiders who seek relationships
with or concessions from particular populations.
This paper begins with a discussion of
indigenous strategies of empowerment that are
emerging as part of a unified worldwide
movement. Having offered this backdrop, a
comparison of neoclassical and substantive
economic theories is presented in order to draw a
distinction between the
rational/universal
perspectives of the mainstream business
community vs. the culturally specific orientations
suggested by the qualitative social sciences.
Using this context as a foundation, discussions
regarding (1) the assessment of opportunities
involving indigenous people and (2) mitigating
harmful consequences of outside intrusion and
change are discussed. These thoughts set the
stage to discuss a number of indigenous peoples
from the Middle East and neighboring regions.
Dutch settlers bought Manhattan Island (the
current site of New York City) from a local tribe
for $24.00 worth of beads. Many other less
colorful but more profound examples of
inequitable compensation exist.
At some point in history, however,
indigenous people began to acquire the knowledge
and abilities needed to effectively negotiate. An
example of this growing skill is the success of late
20th century Seneca Indians who renegotiated a
lease agreement made a century before. In the
19th century, a group of investors in central New
York (USA) leased a tract of Seneca land for 99
years. When the original contract was drawing to
an end, the Seneca stated their intention to
significantly raise the rent. The tenets laughed at
first, eventually fought back with lawsuits, and
ultimately lost as the Seneca proved to be tough
negotiators. In the legal battle that followed, noncompliant residents were evicted for non-payment
of the required rent as the Seneca prevailed. (See
Hogan 1974 for background information.)
The actions of the Seneca are not unique.
Indigenous people throughout the world are
gaining the ability to professionally manage their
affairs and to negotiate on an equal footing with
outsiders. A number of factors contribute to this
increase in savvy including (1) Indigenous people
are better informed, (2) indigenous leaders are
learning from each other, and (3) various
indigenous peoples, in contact with each other, are
collaborating
and/or
sharing
strategies.
Indigenous peoples, furthermore, increasingly
have access to resources such as consultants,
lawyers, and negotiators who act on their behalf.
Each of these issues is discussed below.
THE GROWING SOPHSISTICATION OF
INDIGENOUS PEOPLE
There was a time when indigenous people and
rural ethnic enclaves were naïve and easily
manipulated by outsiders. We have all heard
stories of Western imperialists, colonialists, or
adventurers who extracted gigantic profits by
taking advantage of people who lacked an
understanding of contemporary business and/or
the true value of the assets, rights, knowledge,
andso forth that they carelessly bartered away.
Representative of this tendency is the legend that
Indigenous people are increasingly informed.
There was a time when the leaders of indigenous
peoples and rural ethnic enclaves tended to
possess minimal “mainstream” educations; as a
result, they lacked the ability to function
effectively in the larger, dominant, culture. This
situation gave a significant negotiating advantage
to outsiders.
Such observations fit well with theories of
“neo-colonialism” that explore how countries and
organizations from the developed world
manipulate the people of developing regions in
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self-serving ways. Observers of neo-colonialism,
of course, maintain that after the end of the
colonial era (following World War 11) the former
“mother countries” developed techniques to
maintain their economic and political dominance.
In countries (such as the United States) that are
the home to indigenous minorities, furthermore,
old patterns of control by the mainstream society
tended to continue, in a manner that parallels neocolonialism.
Even when these countries
established legal rights for their indigenous
populations, equity and parity was often slow in
coming.
Critics of this system complain that the
resulting pattern of “rich vs. poor” and/or
“informed vs. ignorant” trapped developing
regions into the roles of supplying raw materials
and cheap laborer. That situation is now being
eclipsed in many places as education is
increasingly available to all people and the image
of indigenous people as unaware, uneducated, and
easily manipulated is becoming passé. Today,
many indigenous individuals are college trained
and possess the skills needed to understand the
full implications of their actions and to negotiate
with savvy.
In this emerging environment, indigenous
leaders often focus upon upgrading the
educational resources available to their people.
The work of Maori (New Zealand indigenous
people) leader Graham Smith is a good example
of this trend. Smith has spent his career helping
the Maori and other indigenous people develop
strategies that (1) provide the skills necessary to
be effective in the larger world while (2)
simultaneously using education to strengthen local
traditions and identities. Smith’s efforts have
resulted in a major initiative designed to help
members of the Maori community earn advanced
degrees so they can contribute to cultural and
economic revitalization. Smith’s work is
internationally recognized and praised.
Not only does Smith’s work have
significance within New Zealand and the Maori
community, he has become an international
spokesman for indigenous education. Speaking to
the Alaska Federation of Natives, Smith (2003)
noted a number of key principles involving
indigenous thinking and action. Below is an
abstraction of these principles (that has been
generalized beyond the Maori focus that Smith
provides):
Self-determination/relative autonomy.
Indigenous peoples need increased control over
their lives and their heritage (including greater
autonomy over decision-making in education.)
Indigenous people should be able to make choices
and decisions that reflect their cultural, political,
economic, and social preferences.
Validating and legitimating cultural
aspirations/identity
Smith emphasizes that a common flaw of
educational
strategies
within
indigenous
communities has been an inadequate attention to
the maintenance of the local culture and identity.
This trend needs to be reversed and mitigated.
Incorporating culturally preferred pedagogy
In many cases, educational strategies that are
introduced into indigenous communities fail to fit
within the culture and, as a result, they are not
effective.
Methods that connect with the
backgrounds and lifestyles of people should be
embraced so students can most effectively learn in
a culturally relevant manner and one that does not
trigger alienation.
Mediate conflicts
Indigenous people need to recognize that
schooling can be a positive experience despite
other social and economic impediments that may
exist in the wider community. Education can help
to mediate or intervene when unequal power
relationships exist between a local community and
the larger, more powerful, outside world.
Emphasize 'collective' as well as 'individual'
identities
Indigenous people and cultures possess identities
and needs that transcend beyond the individual.
As a result, simultaneously focusing upon both
personal and group priorities is useful. Centering
only upon individual and/or short term issues can
be counterproductive and weaken indigenous
power and identity. This reality needs to be
recognized.
A shared and collective vision
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Indigenous people need to develop and express
their political, social, economic and cultural
aspirations. A well-articulated pronouncement of
these goals can provide direction and a yardstick
that can be used when evaluating options.
action. In other situations, indigenous people who
have benefited using a specific strategy, share this
information so it can be borrowed and applied
elsewhere.
The rapid diffusion of tactics and strategies
Today’s world, of course, is caught up in a digital
revolution spearheaded by the internet. The
services and advice offered by this technological
advance are quickly and cheaply available. In
earlier eras when indigenous peoples were largely
cut off from the outside world, ideas and
knowledge diffused slowly if at all. Today, in
contrast, few barriers exist to inhibit the free flow
of information; even the desperately poor have
access to the internet and cellular phones.
“Rising tides float all ships”: the digital revolution
is ubiquitous and provides aid to hither to
disenfranchise ethnic group’s ad small hinterland
populations, not merely large corporations and the
mainstream world. Today, a wide range of
indigenous people are communicating via the
internet allowing ideas and strategies to quickly
disseminate.
In the past, outsiders often
dominated because indigenous people lacked
knowledge and had trouble communicating.
Those days are largely drawing to a close.
Indigenous people increasingly envision
education in ways that are reflective of Smith’s
vision and those who hold similar views. As a
result, not only are indigenous people gaining ad
hoc skills, their educations are being designed to
reinforce, not undercut, cultures, traditional
priorities, and social relationships. Mainstream
negotiators can expect future indigenous
negotiators to be (1) better informed and to be
more effective at the bargaining table as well as
(2) more attuned to their cultural and heritage.
Indigenous people are learning from each
other.
Indigenous people are unique. Cultures are
distinct.
Different indigenous communities,
furthermore, have often been in conflict with one
another. A key strategy of the old colonial powers
was to systematically pit local groups against
another in ways that (1) weakened their control
(2) in ways that shifted the balance of power to
outsiders.
Although specific indigenous cultures are
distinctive and should be envisioned as such, they
are often subjected to similar challenges and
pressures from the outside world. As a result,
although particular people are distinctive, they
often encounter parallel pressures and tensions
when subjected to outside contact. The common
ground created by these parallel experiences is
increasingly being recognized by indigenous
people from throughout the world.
In the United States, for example, there
has been a great growth in what are called
“intertribal pow-wows” (meetings involving
different indigenous groups.) In the past, tribes
and bands often remained relatively isolated and,
as a result, they did not profit from the
experiences of others.
Today, in contrast,
different indigenous groups tend to exchange
information, offer advice, and collaborate with
each other. In some cases, different peoples act in
concert with each other in order to gain the critical
mass needed to effectively pursue a course of
Professional help is available.
Although local people are gaining knowledge and
skills, the aid of outside experts and consultants is
often required.
In the past, these experts
championed views that reflected the perspectives
of mainstream outsiders who often depicted the
views of local people as passé and on the wane.
Today, in contrast, the recognition is growing that
specific peoples have their own priorities that
might be legitimate even if such ideas fail to mesh
with the conventional wisdoms and strategic
paradigms embraced by outside corporations.
When acknowledging such alternative
visions, the full impact of a decision is evaluated
with reference to the goals, fears, aspirations, and
so forth held by the local community. This
broader vision allows the full implications of a
business strategy to be perceived in a more robust
manner.
A key point to remember is that
indigenous societies are increasingly informed.
As a result, they are no longer easily manipulated.
The old stereotype of “ignorant savages”, easily
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bested in negotiations, is no longer accurate under
most conditions.
The Middle East and neighboring regions
contains a wide number of indigenous peoples,
some of which will be briefly discussed later in
this paper. Many of these peoples harbor specific
priorities that are not reflective of the models
typically embraced by mainstream business
strategists. In order to effectively deal with these
populations, understanding their motivations and
preferred strategies and responding in a
meaningful manner is essential. One way to
envision this issue is to realize that different and
competing models of economics exist.
intuitive) cost-benefit analysis.
Some key
assumptions of the method are discussed below.
Economic Man Model:
Neoclassical thinkers embrace some version of the
“economic man” model which assumes that
people act in rational ways designed to maximize
benefits and/or minimize costs. Thus, people are
viewed as (1) seeking specific goals (2) while
hoping to gain these benefits at the lowest “cost”
as defined by the context. These assumptions, of
course, do not imply that people’s choices are
inevitably wise, intelligent, or truly in their selfinterest, but merely that economic actions are
triggered by some sort of rational thought that
centers around winning what are perceived to be
maximum benefits and/or minimizing costs.
RIVAL ECONOMIC MODELS
As discussed above, indigenous people are
typically gaining sophistication and developing
the tools needed to successfully negotiate with
outsiders. In many cases, however, these people
envision their lives and options in ways that
conflict with the recommendations of mainstream
consultants and business partners. Outsiders are
likely to write off these deviations as artifacts of
ignorance and fuzzy-minded thinking even when
the people clearly understand their goals. In order
to clarify the situation, a juxtaposition of
neoclassical and substantive economic theory is
useful.
Perfect Information Model
The neoclassical model often assumes that
economic actors have access to perfect
information and that they interact in an
environment of perfect competition. In other
words, each participant in an economic sphere is
presumed to possess all the facts regarding costs,
product quality, etc. Although this projection is
seldom if ever completely true, the model has
proved useful in many contexts.
Profit Motive Model
The
neoclassical
model
depicts
consumers/customers as seeking to maximize
utility (getting something for a minimal cost)
while firms or suppliers are viewed as seeking
maximizes profits. As a result, there is a tendency
for organizations to offer customers what they
want at a competitive price and for customers to
strategically buy with care.
The neoclassical model is the economic
paradigm that long dominated contemporary
business theory and practice. In spite of internal
debates, all neoclassical economists embrace
rational and universal assumptions that assert:
1. Economic decisions are essentially rational in
nature.
2. Individuals seek the most “utility” and/or the
lowest cost.
3. People have access to perfect information.
4. People tend to act independently of each other.
5. Individuals/consumers
seek
utility,
organizations seek profits.
IN SUMMARY: neoclassical theory simplifies
the analysis of economic behavior by making
certain assumptions that are might not be totally
accurate. Many scholars and practitioners embrace
these imperfect models in the belief that they are
accurate enough to provide useful insights. Under
certain circumstances behavioral economics
tempers these assumptions; nonetheless, the
neoclassical model remains powerful. Economic
perspectives developed by social anthropologists,
in contrast, often view economic (as well as all
Although
sophisticated
economists
understand that complex decisions involve
emotional and/or irrational factors (such as those
raised
by
behavioral
economics),
the
neoclassicists assert that the most effective
economic models focus on rational thought that is
geared around some sort of (conscious or
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Alf. H. Walle
other) behavior from within a broader social and
cultural context. Significant differences between
these two approaches need to be discussed.
As suggested above, those who embrace
neoclassical thinking portray it as universal,
rational, and inevitable, even if somewhat
tempered by behavioral economics.
This
orientation can lead to the conclusion that
significant variations from this pattern among
hinterland people should be written off as
reactionary, out of touch, backward, and/or due to
ignorance.
An alternative position suggests that
alternative
paradigms
that
address
the
social/cultural milieu of economic behavior is
needed.
In other words, under certain
circumstances economic behavior might not be
universal as the neoclassicists believe, but
responds for local beliefs, traditions and
perspectives. These perspectives have a long
history in anthropology and deal with local
challenges to the neoclassical model just as
behavioral economics, challenges neoclassicism
using psychological perspectives.
Thus, neoclassical theories often need to
be supplemented by models that are more
culturally specific and emotional in nature, not
universal and rational. In order to consider this
option, we will briefly consider substantive
economic theory (see Plattner 1989 & Wilk, R.
1996.)
The classic statement of the substantive
position, of course, is found in Karl Polayni’s The
Great Transformation which argues that a great
divide in humanity is marked by the transition
from small scale societies (in which people
interact in intimate ways involving face to face
contact) to the environment spawned by the
industrial revolution (that is typified by wage
labor, increasingly impersonal relationships, and
an economy based on money.) Polayni argues
that
the
transformations
triggered
by
industrialization creates patterns of life and human
interaction that are profoundly different from what
had been experienced in earlier times and still
exists in various small scale societies (Polanyi
1968.)
Polayni and those who embrace his
perspectives believe that the modern industrial
world is a specific realm where rational actions
and strategic decisions (largely reflective of the
neoclassical model) dominate. People in such a
system are assumed to be striving to advance their
individual situation in overt, rational, and
calculated ways. Thus, these people tend to
function in ways that reflect neoclassical
economics.
The substantivist position, however,
insists that that these patterns of social and
economic response are not universal and that the
neoclassical framework is an artifact of the
industrial age, not a general model that can be
applied to all people.
In specific, the substantivists argue that
within many small scale societies, economic
activity is not a separate and distinct realm of
strategic behavior; instead, it is subtly intertwined
within the entire culture (including kinship
patterns, mores, religion, ceremony, etc.) When
social, cultural, and economic pressures and
responses are enmeshed in such a manner, onedimensional neoclassical analysis is not robust
enough to portray economic behavior in all its
complexity. By conceptualizing economics in a
broader substantive manner, the rational and
universal aspects of economic life are no longer
viewed as the only mainsprings influencing
action.
Polayni made significant use of two
terms,
“redistribution”
and
“reciprocity.”
Reciprocity involves a long-term pattern of
mutually exchanging of goods and/or services,
typically among those who are perceived to be
equals. Interacting in this way emerges as part of
the fabric of life and not as payment, charity, or a
calculated “quid pro quo.” Redistribution, in
contrast, takes place when a strong leader or
political force gathers resources that are then
doled out in accordance with some culturally
established formula. Scarce and desirable goods
are dispersed even though the rational
marketplace (that is modeled by neoclassical
theory) is not the mechanism that does so.
Polayni and the substantivists use the term
“embedded” to indicate how this process actually
works. Instead of economic activity being a
distinct and discrete part of life and culture,
distribution and allocation are nested within the
entire cultural and its social framework. Thus,
economic life is not totally dictated by rational
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Alf. H. Walle
and universal responses that take place in relative
isolation. (For a fuller discussion see
(Granovetter1985.)
Many examples of such non-neoclassical
behavior have been documented. The Inupiaq of
modern day Alaska, for example, continue to hunt
bowhead whales (Walle 2009.) The majority of
the meat is shared with the community, given
away in a traditional fashion. The home of a
successful whaling boat captain is opened to the
public for a feast and everybody goes home with a
sack of whale blubber and meat. At various other
times in the year (such as Thanksgiving)
additional redistributions take place.
This
culturally regulated dispersal remains a significant
part of life for the Inupiaq even though they are
increasingly connected with the larger outside
world.
Certainly, neoclassical economists can
portray the acts of these donors as merely seeking
to capture respect (a scarce and desired
commodity) in a manner reminiscent of
philanthropists in the developed world who seek
prestige and notoriety through charity.
Nonetheless, the whole process is much more
complex and it is intimately connected to the
cultural heritage of the people. Attitudes and
behaviors are structured in accord with long
standing traditions. Adherence to these cultural
dictates is not viewed as optional; sharing the
whale is a part of the Inupiaq way of life. Under
such circumstances, economic activities and other
traditions are seamlessly intertwined.
Those who attempt to apply neoclassical
techniques within such a context can inadvertently
act in inappropriate ways.
Mental health
professionals (such as substance abuse
counselors), for example, often tap the experience
and wisdom of local healers and elders. Western
trained professionals who have been aided by
such indigenous healers might ask something like:
“How much are you charging for these services?”
The traditional healer might respond by saying,
“Nothing, I never receive payment when I help
someone.”
Hearing this, the Western trained
professional, who embraces a mainstream
economic perspective, might close the
conversation with a hollow “Well, thank you very
much”, sending the healer on his or her way.
Westerners, who may think purely in
financial terms that revolve around services
provided for a demanded price, often fail to
understand that the healers are operating within a
substantive context. No specific benefits are
expected for a particular service; instead,
exchanges take place within an established social
milieu that harbors a number of informal
expectations. Maybe a load of firewood will be
anonymously delivered to the door of the healer;
perhaps, proceeds from a successful hunt
expedition will be shared, and so forth. Healers
are understandably concerned when they help
therapists to earn money while being denied the
benefits and respect that has long been provided
them by local people via the substantive system.
Westerners, however, can easily overlook this
reality and the need to deal with it (Walle 20052008.)
The substantivist paradigm can avoid
such problems by viewing the various institutions
of the culture (family, social structure, religion,
mores, etc.) as combining to create the frame
within which economic response takes place. In a
variety of circumstances, doing so can provide a
much richer and more robust understanding than
neoclassical analysis.
In traditional and small scale societies, a
substantive economic system is likely to exist side
by side with whatever market/cash economy is
simultaneously present. Being attuned to such
substantive responses can help intrusive outsiders
to understand that neoclassical models, although
functioning well under certain conditions, might
not be appropriate in other circumstances. In
short, neoclassical thinking is a specialized tool
(not a universally applicable method.)
As any other paradigm, the substantive model is
not immune to criticisms. Thus, Prattis (1982)
reminds us that the distinction between primitive
and modern economies is largely arbitrary even
though Polanyi seemingly argued in black and
white terms. My rebuttal is that Polayni was
merely using a dialectical style of argumentation
to juxtapose rival points of view.
No doubt
Polanyi recognized the obvious: many variants
exist in economic life (as well as in all other
phases of society and culture.)
A further critique of the substantivist
model comes from members of a splinter group
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Alf. H. Walle
often called the culturalists, such as Steven
Gudeman (1986.) Even more socially focused
than the substantivists, the culturalists focus upon
the way economic behavior is perceived by local
people. Rejecting the paradigms of outsiders, the
culturalists insist that local perspectives should
dominate the way economic activity is envisioned,
modeled, and studied. Gudeman, for example,
uses the phrase “people’s own economic
construction” (1986:1) when doing so.
Although the culturalists make some good
points, their work can best be viewed as a
clarifying refinement of the substantivist approach
and not as a new school of thought.
In summary and conclusion, three distinct means
of modeling and interpreting economic behavior
exist.
The neoclassical perspective reflects
conventional business thinking and tends to be
rational and universal. Behavioral economics
emphasizes that psychological variable can
undercut the neoclassical model. The substantive
alternative views the neoclassical model as an
artifact of the industrial revolution that is not
broad enough to be usefully applied in all cultural
and social situations.
As an alternative,
substantive analysis looks at economic activity
from within a cultural context.
A representative means of assessing and
evaluating economic options (and one that is
increasingly employed in projects receiving
United Nations funding) is commonly called the
“Triple Bottom Line.” Popularized in John
Elkington’s book Cannibals with Forks: The
Triple Bottom Line of 21st Century Business, this
method offers an alternative to neoclassical
models when assessing the full impacts of a
business intervention. Elkington’s model, more
robust than relying solely on financial accounting
data, simultaneously factors in (1) the effects upon
people and (2) the impacts upon the environment.
Elkington argues that these additional measures
need to be considered along with profits if
adequate assessment and evaluation is to take
place.
The “people” component refers to the
impacts of a business decision upon the
population. When thinking in terms of this
variable, mainstream evaluators are likely to focus
upon issues such as good working conditions,
avoiding the use of child labor, etc. When dealing
with indigenous enclaves, however, additional
considerations, such as the amount of cultural
disruption triggered by an initiative, may be
necessary. How much psychological depression,
alienation, etc. can be expected if a project
triggers rapid and uncontrolled change? These are
real and measureable costs that need to be
considered but can be overlooked by models such
as neoclassicism.
In addition to people, Elkington insists
that the health of the environment also needs to be
addressed.
Striving towards long term
sustainability (both locally and worldwide) should
also be a goal. Care is required to prevent the
ecological system from being pushed past its
carrying capacity. Strategies for lowering the
consumption of energy, reducing pollution,
minimizing waste, and so forth, are discussed.
Besides of these generic considerations,
indigenous peoples may have special needs and
vulnerabilities because they often live close to the
earth and their ways of life depend upon some sort
of ecological stability. Many indigenous peoples,
for example, reject or oppose lucrative extractive
and
mining
opportunities
that
involve
commodities such as oil, coal, gold, copper, etc.
because these activities might undermine
ASSESSING AND MITIGATING CHANGE
AND DISRUPTION
So far, this paper has argued that indigenous
peoples throughout the world are gaining
increased sophistication and developing the skills
required for negotiating in an effective and
informed manner. Due to this growing savvy, the
old stereotype of indigenous peoples as “ignorant”
and “easily manipulated” dupes is fading. Our
discussions have also acknowledged that universal
and rational models, such as neoclassical
economics, may not be appropriate when dealing
with many indigenous peoples who respond to
cultural specifics, not economic universals.
When strategies are envisioned, they need
to be viewed accordingly and, where necessary,
their impacts may require mitigation that copes
with whatever harmful implications might arise.
Both of these considerations are discussed below.
Assessing
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Alf. H. Walle
subsistence hunting and fishing which the culture
values and wants to maintain. As a result of these
community priorities, indigenous people often
make decisions that appear to be nonsensical to
those who embrace more mainstream views and
goals.
As a result, the triple bottom line reminds
us that the quest for profits needs to be moderated
by a consideration of human and environmental
issues. Praised in many circles, the approach is
condemned by detractors who are likely to
complain that criteria like “people” and “planet”,
unlike financial accounting notations, are difficult
to measure and/or objectively quantify. Relying
upon fuzzy yardsticks of evaluation like “people”
and “planet”, the logic continues, can lead to
sloppy and non-actionable thinking. As a result,
some critics advocate eliminating these criteria
from the decision making process (Norman and
MacDonald 2003.)
Although critiques such as these might be
legitimate, they should be viewed as suggestions
for refining the triple bottom line, not as evidence
that the approach is fatally flawed.
Those
who are concerned with assessing the full impacts
of economic development, cultural changes, etc.,
have long attempted to temper the profit motive
with broader perspectives. Elkington’s model
offers a means of doing so.
In conclusion, the yardsticks needed to
evaluate economic decisions should acknowledge
the possibility that specific people have legitimate
priorities that neoclassical analysis might ignore
or discount. This reality needs to be accepted
along with the realization that such atypical
perspectives might be informed and not naïve.
Industrial Revolution, for example, Durkheim
argues that the population shifted to urban areas
and the face-to-face subsistence way of life gave
way to a wage-based cash economy. As a result of
these changes, people were forced to live in a
manner that was in conflict with the essence of
their culture and their heritage. Harmful side
effects developed as a result.
Anomie typically creates discomfort when
people become confused regarding how to act and
no longer know what to expect from others. As
the heritage, mores, relationships, and traditions
of earlier times fade or are weakened, shared
norms, beliefs, hopes, and expectations become
increasingly unable to unite people in a positive
and constructive ways. Durkheim linked anomie
to harmful dysfunctions such as a rise in the
suicide rate.
In the mid-20th century, sociologist
Robert Merton expanded the concept of anomie
by arguing that its key cause is a disparity
between (1) the goals that society gives to people,
coupled with (2) an inability to achieve these
objectives in the socially acceptable manner.
When this unhealthy situation arises, anomie is
the likely result (Merton 1957: 121-94.) The
resulting discontinuity and discrepancy can trigger
painful stress and potential dysfunction.
Merton went on to suggest that when
people cannot achieve their goals in socially
acceptable ways, the propensity for deviant and
counterproductive behavior triggered by anomie
increases. Small rural communities that are
experiencing unprecedented social and economic
change are especially likely to be as risk.
In the contemporary era, American
business commentator Alvin Toffler (1970) has
argued that even in the modern industrial world
unrelenting change wrought by snowballing
technological transformations can reap staggering
emotional, cultural, and social costs, especially if
they are left unchecked and unmitigated.
Toffler suggests that the industrialized
West (that has already modernized) is typified by
this kind of alienation and social disruption. In the
developing countries and among indigenous
populations, social change wrought by outside
forces can be even more profound and harmful.
This tendency is demonstrated by Harold
Napoleon’s Yuuyaraq: The Way of Being Human
Mitigating
The assessment process is likely to identify
significant changes and stresses that a specific
course of action might trigger. The concept of
anomie provides a useful way to envision the
harmful side effects of a strategy in need of
mitigation. Anomie, as a major concept of the
social sciences, can be traced to 19th century
anthropologist Emile Durkheim who sought a
means of dealing with the impacts of
unprecedented social and economic change and
how it breaks down the rules, norms, and
traditions of society. Discussing the impact of the
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(1996) which deals with the trauma faced by
indigenous Alaskans due to unanticipated and
unmitigated social change. Napoleon points to the
tragic irony that just as the conditions of material
life began to improve for Native Alaskans, a rash
of dysfunction and suicide arose within
indigenous communities. Napoleon explains this
ironic situation as the product of social change
that created harmful conditions that people were
not prepared to endure. Thus, Napoleon, although
seemingly unaware of the sociological concept of
anomie, independently reinvents many of the
concepts presented by Durkheim and Merton.
As suggested above, outside business
leaders often lack the specific skills needed to
assess and mitigate the unanticipated and harmful
impacts of the interventions they propose.
Applied anthropology, however, has long sought
to predict and cushion change in culturally
specific ways. Applied anthropologists, for
example, are quick to dismiss the tenets of
neoclassical economics that so many business
leaders embrace. Although business leaders often
assume that cultural specifics must inevitably give
way to universal economic laws and trends,
applied anthropologists debate this truism.
Representative of such ideas is David MayburyLewis who observes: “There is no natural or
historic law that militates against small societies.
There are only political [and economic] choices”
(Maybury-Lewis 1977.)
Thus, although the conventional models
often embraced by business leaders might dismiss
small scale, indigenous cultures as remnants
slated
for
inevitable
oblivion,
applied
anthropologists realize this decline is not
preordained.
Although change might be inevitable, applied
anthropologists
focus
upon
orderly
transformations coupled with the possibility of
preserving a people’s heritage and their traditional
way of life. On many occasions, this can be
accomplished by helping to bolster the indigenous
culture. G.N. Appell, for example, insists that a
viable cultural heritage can help mitigate the
impacts of traumatic change. He insists: “A
society undergoing change ... has a right to access
its cultural traditions, its language and its social
history” (Appell 1977: 14.) Appell senses that
doing so is important because people are often
victimized by what he calls the social separation
syndrome:
.. [which] involves role conflict and ambiguity,
threat to one’s self esteem, and an impaired social
identity … Social bereavement arising from social
change seems to follow a developmental sequence
similar to personal bereavement ... There is first a
period of denial and numbness accompanied by
anxiety, fear, and feelings of threat to one’s
identity. This is succeeded by a phase of frustrated
searching for the lost world or individual, hoping
for a reversal and then bitter pining and unrelieved
sense of pain … Following this is a period of
depression and apathy ... Finally there is the phase
of reorganization when the bereaved begins to
build new plans and assumptions about the world
(1977: 14.)
Appell’s model parallels the concept of
anomie as discussed by Merton who, as we have
seen, argues that the culture provides the goals
that people should seek as well as a socially
acceptable means of achieving them. Rapid and
unmitigated social and economic change,
however, often creates a situation where soughtafter goals cannot be won in a socially legitimate
manner. This situation can lead to anomie and
alienation, which parallels what Appell describes
as the social separation syndrome.
Thus, change (even when it has positive
aspects) can exert harmful results when it
undercuts the ability of people to legitimately
achieve their goals. This situation can lead to a
multitude of personal and societal dysfunctions.
No wonder many indigenous people are deeply
concerned about preserving their heritage as a
“going concern” even though they realize the
future will trigger inevitable transformations.
Although mainstream outsiders may feel
they know what is best, people have a right to
self-determinism even though the impacts of
stability and change need to be addressed. In this
regard, Ormund Loomis once observed: Proposing
... efforts to stem inevitable change in society
would be pointless. Further, in a free society, even
... to slow the progress would be wrong ... It is
possible, however, to temper change so that it
proceeds in accordance with the will of the
people, and not in response to the pressures of
faddish trends or insensitive public or private
projects (Loomis 1983: 29.)
20
CCJ, V. 1, No. 1- May 2016
Alf. H. Walle
These tactics are perceived as means by
which stress and disruption triggered by change
and contact can be mitigated in ways that reflect
the will of the people. Doing so can be important
because cultural traditions are often the “ballast”
that prevents people’s lives from being toppled by
a storm of opportunities and obligations that are
centered around the demands of the outside world.
Paying attention to the specific culture and the
priorities of its people can provide strategies
regarding the mitigation of harmful impacts
spawned by contact and growing economic
relationships.
those of Berber and Arab identity so neither group
gained an upper hand. After independence,
however, those of Arab descent and the Arabic
language tended to gain dominance causing many
Berbers to complain that discrimination has risen
as a result. Some of the Berbers in the south,
furthermore, claim that the darker skinned people
living there refuse to treat them in an equitable
manner. Indeed, the regrettable military actions in
recently playing out in Mali are often depicted by
Berbers apologists as an attempt to create a place
for those of Berber descent to live a selfdetermined life.
Since I am not political
scientists, this paper has no opinion regarding
such claims. Many Berbers, however, hold these
views and act accordingly.
INDIGENOUS PEOPLE OF THE
“GREATER” MIDDLE EAST
The Middle East and neighboring regions are the
home to a wide variety of indigenous populations.
These people tend to possess a distinctiveness that
needs to be recognized as economic and cultural
strategies are implemented. In order to portray
some of the issues demanding attention, a
representative sample of three indigenous groups
are discussed. Going from west to east, these
groups are the Berbers, the Kurds, and the Kuchi.
No specific agenda was in mind when choosing
these groups, except they are well known.
Each indigenous group is briefly
discussed although, due to issues of space, only
the barest and universally known details are
provided in an informal narrative devoid of
complex documentation. Although the struggles
of these peoples are multifaceted and complicated,
it is not the purpose of this paper to take sides; our
goal is merely to point to the fact that indigenous
peoples exist in the Middle East and neighboring
regions and that they have their own needs,
agendas, and desires.
Kurds
The Mohawk Indians live in New York State and
the Province of Ontario (straddling the border of
the United States and Canada.) Both countries
have a history of demanding that members of this
tribe declare their country of citizenship. Many
Mohawk refuse to do so on the grounds that their
identity as Mohawks predates the boundaries of
the current political regimes and, therefore, their
pre-existing nation takes precedence. In doing so,
the Mohawk affirm they are a cultural and
political entity that happens to be located in newer
countries that have been superimposed on their
territory. Various tensions and disruptions have
occurred because of this polemical stance.
The Kurdish people of the Middle East
face a similar situation and make a parallel
argument. Their homeland territory (typically
referred to as Kurdistan) is currently divided
among a number of countries including Turkey,
Iran, Iraq, and Syria. In each of these sovereign
nations, the Kurds are a minority. If Kurdistan
were united as a separate country, however, the
Kurds would be in a solid majority. The Kurds,
furthermore, have long pressured for a country of
their own in a quest going back at least to the 19th
century (and for a short time after World War 1 a
Kurdistan did exist). Up to and including the
present time, tensions and violence have often
broken out over this issue both sides suffering as a
result.
In some cases (such as in Iraq) the
national government has been accused of
Berbers
The Berbers are a people of North Africa who
began living in the region long before the Arab
conquests that took place over a thousand years
ago. They continue to be a major demographic
and ethnic group in countries such as Algeria and
Morocco.
During the era of European intervention
that reached a high point in the 19th century and
ended after World War 2, colonial administrations
tended to moderate the relationships between
21
CCJ, V. 1, No. 1- May 2016
Alf. H. Walle
committing atrocities against the Kurds because of
their ethnicity. Even when not treated this
harshly, many Kurds believe that their interests
are not best served because of their minority
status.
Many Kurds continue to pressure for the creation
of a country of Kurdistan where the Kurds will
have their own government and not suffer from a
minority status. The countries that would have to
give up territory to accomplish this goal, however,
are unwilling to do so. This situation is the cause
of international tensions.
people and understanding their needs and
demands are required.
DISCUSSION AND CONCLUSION
Outside intruders, such as businesses, are
increasingly interacting with indigenous ethnic
groups. When dealing with these peoples, models
and strategies that transcend neoclassical
economics are often needed.
The amount of cultural disruption faced
by a people typically needs to be considered. The
triple bottom line (that acknowledges the
importance of people and the environment as well
as profit margins) provide a means of advancing
this dialogue. The concept of anomie, (the lack
of an ability to achieve socially acceptable goals
in a culturally sanctioned manner) also needs to be
considered because it has often triggered
unhappiness and dysfunction. Appell uses the
term “cultural separation syndrome” to deal with
such situations. Mainstream methods of analysis
(such as neoclassical economics), however, may
not be robust enough to adequately deal with all
of these important variables. The substantive
alternative, in contrast, offers a more robust
means of understanding.
The Middle East and neighboring regions
are the home to a wide range of indigenous
peoples. These ethnic groups often respond to
business opportunities in a manner that reflects
their culture and traditions. In many cases,
indigenous people harbor a conscious desire to
protect and revitalize their heritage. In essence,
they seek ways to reduce the amount of anomie
faced by stabilizing their cultures, mores, and way
of life. By modeling their responses with this in
mind, the actions of such peoples can be more
readily understood.
The ethnic strife triggered by recent
advances by ISIS and the way in which these
events will impact the ethnic groups and
indigenous people involved also needs to be
considered.
In addition to perceiving these triggers of
response, business scholars and practitioners need
to be aware (1) that indigenous people are gaining
greater sophistication and negotiating skills and
(2) that they tend to be consciously motivated by a
desire for self-determinism. By keeping these
issues in mind, businesses seeking to establish
Kuchi.
The Kuchi of Afghanistan are a nomadic group
that herds animals and tends to migrate into
Pakistan and back to Afghanistan on a seasonal
basis (although more secure national boundaries
make this age-old pattern of movement
increasingly problematic. For many years, the
Kuchi provided the people of Afghanistan with a
large percentage of their meat and other animal
products. The Kuchi have also mastered a
number of skills such as jewelry making in order
to provide services and supplement their incomes.
In recent decades, unfortunately, the Kuchi have
lost a number of important economic concessions,
such as the right to summer pastureland. They
have also suffered due to war and natural
disasters. These events are creating hardships and
placing the people and their way of life in harm’s
way.
In summary, the Middle East and
neighboring
regions
are
not
culturally
homogeneous. Great variation exists and many
significant ethnic groups dot this diverse part of
the world. Their actions, furthermore, appear to
be fueled by motivations that clearly expand
beyond purely rational neoclassical economics.
These peoples often show signs of being displaced
and/or cut off from their way of life. As a result,
the pressures and pains of anomie are likely to be
faced.
We have briefly discussed three
representative groups that portray this potential;
they are a sampling of a larger reality and in no
way meant to be exhaustive.
These peoples have their own goals and
priorities that tend to transcend mainstream
economic considerations. As a result of this
reality, more robust methods of evaluating these
22
CCJ, V. 1, No. 1- May 2016
Alf. H. Walle
relationships with indigenous populations are
likely to be more successful.
REFERENCES
Appell, G. N. (1977) “The Plight of Indigenous
People: Issues and Dilemmas,” Survival
International Review 2, 3:11-l6
Durkheim, Emile, Elkington, John (1999) Cannibals
with Forks: The Triple Bottom Line of 21st
Century Business (Mankato, MN: Capstone.)
Merton, R.K. (1957) Social Theory and Social
Structure (New York: Free Press of Glencoe.)
Napoleon, H. (1996) Yuuyaraq: The Way of the
Human Being (Fairbanks, AK: Alaska Native
Knowledge Network.)
Norman, W.and C. MacDonald (2003) “Getting to
the Bottom of ‘Triple Bottom Line’,” Business
Ethics
Quarterly
14
3:
243-262
www.businessethics.ca/3bl/triple-bottom-line.pdf
on.)
Smith, Graham Hingangaroa (2003) “Indigenous
Struggle for the Transformation of Education and
Schooling” (Keynote Address to the Alaskan
Federation of Natives (AFN) Convention.
Anchorage, Alaska, U.S.)
Walle, Alf H. (2009) In 2009 Alf H. Walle, one of
the authors lived in Barrow, Alaska and
personally witnessed the events discussed.
Walle, Alf H. (2005-2008) Alf H. Walle is a state
certified substance abuse counselor with
significant experience working with Alaska
Native clients. As such, he has had numerous
conversations regarding the use of elders and
native healers within the context of Native
therapy.
23
CCJ, V. 1, No. 1- May 2016
Purchasing Power Parity
Mohsen Bahmani Oskooee
and Sahar Bahmani
The Rial-Dollar Exchange Rate and Purchasing Power Parity Theory
Mohsen Bahmani-Oskooee
The Center for Research on
International Economics
The Department of Economics
University of WisconsinMilwaukee
Milwaukee, WI 53201
Sahar Bahmani
College of Business, Economics
and Computing
Department of Economics
University of Wisconsin at
Parkside
Kenosha, WI 53141
Abstract
Since the 1979 Islamic Revolution in Iran, Iranian currency has
depreciated from 70 rials per dollar to as low as some 36000 rials
per dollar. Has this movement followed the path predicted by the
well-known Purchasing Power Parity (PPP) theory? In this paper
we show that the answer is in the affirmative and the dominating
factor causing the decline is domestic inflation. Following the
theory, we predict a rate of almost 47000 rials to the dollar.
INTRODUCTION
A review of the value of the Iranian rial against the U.S. dollar
reveals that it has continuously lost value and mostly since the
the 1979 revolution. The free market exchange rate reveals that
from 1933 until 1979, the dollar rose from 11.20 rials in 1933 to
98 rials in January 1979. However, the rate as of early 2013
stood at 36,300 rials per dollar.1 This paper uses the economic
theory of purchasing power parity (PPP) to explain this abnormal
rise in the rial-dollar exchange rate. If we consider the dollar to
be like any other commodity, the price of land, housing, food,
television sets and, cars, has risen, why not the price of the
dollar? Accordingly then the main explanation for the rise in the
dollar must be domestic inflation. Thus, whatever has
contributed to domestic inflation in Iran, has also contributed to
the increase in the value of the dollar.2 The PPP theory theory
explains the link between the exchange rate and relative prices.
This theory is outlined in section II and applied and tested using
monthly price data in the post-revolutionary period from January
1979 to July 2015. The results are summarized in Section III.3
THE PURCHASING POWER PARITY (PPP) AND
TESTING METHOD
Let EX denote the exchange rate between rial and the U.S.
dollar. The purchasing power parity theory (PPP hereafter)
basically claims that in the long run the exchange rate must be
equal to the price ratio of the two countries.4 Denoting the price
level in Iran by PIR and the price level in the U.S. by PUS, the
PPP could be outlined by equation (1):
1
The rate is at the closing on January 31, 2016.
Such factors include the Iran-Iraq war, loss of oil revenue, sanctions
by the United Nations and the West, and excess supply of money by the
Central Bank of Iran.
3
For history of Iranian rial see Bahmani-Oskooee (2005).
4
For a review article see Bahmani-Oskooee and Hegerty (2010).
2
24
CCJ, V. 1, No. 1- May 2016
and Sahar Bahmani
ˆ  9.63 (565.2)
PIR
EX 
PUS
ˆ  0.842
(107.6)
(1)
R 2  0.96
In order to see if the two variables follow each
other, we plot each of them in Figure 1.
ADF (10)  2.61
If the PPP is to hold, we would expect the
estimate of slope coefficient in (2) to be one
which it is not. We would also expect the
residuals to be stationary. The ADF test statistics
of 2.61 is less than its critical value of 3.76 in
absolute value, implying that the residuals are not
stationary, thus rejecting the PPP theory.7
By assuming the slope coefficient in equation (2)
to be one, we also assume that the inflation rate in
Iran and inflation rate in the US have a similar
impact on the exchange rate, though in opposite
directions. Clearly, this cannot be the case since
very little trade took place between the two
countries during our period of study. To test this
hypothesis, we separate the two terms and
estimate the following specification:
[Figure 1 here]
From Figure 1 we see that indeed, the two
variables move together most of the time.
However, the relation could be spurious unless we
establish cointegration between the two variables.
If we follow the cointegration concept of Engle
and Granger (1987), we show that the two
variables are integrated of the same order d, but a
linear combination of the two is integrated in an
order less than d.
A common practice is to express (1) in a loglinear format as in (2):
If PPP is to hold, an estimate of b should be one
PIR
LnEX t    Ln(
)t   t
PUS
LnEX t  a  bLnPIRt  cLnPUS   t
(2)
(3)
and that of c negative one. Furthermore, εt should
be I(0). The OLS estimate of (3) is as follows:
The results of the ADF (define ADF here
for the first time and then use ADF subsequently)
test applied to the level of both variables as well
as to their first-differences are reported in Table 1.
It is clear that regardless of the number of lags
used in the ADF test, only first-differenced
variables are stationary. Therefore, both Ln EX
and Ln (PIR/PUS) are integrated of order one or
I(1). Now we must show that a linear combination
of the two variables proxied by εt is integrated of
order zero or I(0).5 To that end we estimate
equation (2) and apply the ADF test to the
residuals. The results are as follows:6
aˆ  10.77(7.52) bˆ  0.88(15.6) cˆ  1.13(3.07)
R 2  0.97
ADF (10)  2.64
It is clear from the results that the
estimate of b is not one and that of c is not
negative-one, although they are close to their
expected values. These estimates are significant,
since the absolute value of the ADF statistic of the
residuals is less than the critical value of 3.76, the
null of unit root in the residuals cannot be
rejected, hence the residuals are non-stationary,
rejecting cointegration. 8
To see why εt in (2) is a proxy for the linear
combination of two variables, all we need to do is to
solve (2) for εt..
6
Numbers inside the parentheses for coefficient
estimates are absolute values of the t-ratios. However,
number inside the parenthesis next to ADF statistic is
number of lags in the test. Note that data on price
levels come from International Financial Statistics of
the IMF. Data on the rial-dollar rate are mostly from
5
Bahmani-Oskooee (2005) and author’s own collection.
7
Note that we have selected the ADF statistic by
minimizing the AIC criterion. However, the ADF
statistic was insignificant at all lags (1-12). We also
made sure that both Ln PIR and Ln PUS are I(1).
8
For some other studies that have tested the PPP using
the black market exchange rate see Bahmani-Oskooee
25
CCJ, V. 1, No. 1- May 2016
and Sahar Bahmani
The ADF test applied to the residuals of
equation (3) is said to suffer from low power. We
therefore, shift to an alternative approach of testing
for cointegration that incorporates short-run
dynamic adjustment of variables. To this end, we
follow Coe and Serletis (2002) and Pesaran et al.
(2001) bounds testing approach and rewrite
equation (3) in an error-correction format as
follows:
n1
n2
k 1
k 0
From these results it is clear that while the Iranian
price level carries a significant coefficient, the U.S.
price level does not. This implies that the inflation
rate in Iran is more relevant and the main
determinant of the rial-dollar exchange rate in Iran.
However, the F test applied to the joint significance
of lagged level variables is insignificant given its
upper bound critical value of 4.14 at the 10% level
of significance.9 However, according to BahmaniOskooee and Tanku (2008), there is an alternative
way of establishing cointegration. Using the longrun coefficient estimates and long run model we
generate the error term, usually called errorcorrection term labeled as ECM. We then replace
the linear combination of lagged level variables in
(4) by ECMt-1 and estimate the resulting
specification at the same optimum lags. A
significantly negative coefficient for ECMt-1 will
support convergence toward long run or
cointegration. Once this specification was
estimated, the coefficient estimate of ECMt-1 was 0.03 with a t-ratio of -2.87, supporting
cointegration.
LnEX t   '  ' k LnEX t k    ' k LnPIRt k
n3
   ' k LnPUS t k  0 LnEX t 1  1 LnPIRt 1   2 LnPUS t 1   t (4)
k 0
Equation (4) is an error-correction model
that is similar to the Engle and Granger (1987)
specification. The difference is that rather than
including lagged error term from (3) we have
included its proxy represented by the linear
combination of lagged level variables. In order to
justify the inclusion of lagged level variables,
Pesaran et al. (2001) propose applying the familiar
F test to establish their joint significance as a sign of
cointegration. However, they demonstrate that the F
test in this application has new critical values that
they tabulate. Since these critical values account for
integrating properties of variables, under this
method there is no need for pre-unit root testing and
variables could be combination of I(0) and I(1),
though our variables are all I(1).
Equation (4) is estimated after imposing 12
lags on each variable. Following the literature, we
use Akaike’s Information Criterion (AIC) to select
an optimum model. The selected model was an
order of (12, 3, 0) and the normalized log-run
coefficients and the F test for joint significance of
lagged level variables were estimated to be:
aˆ '  9.46(0.98)
ˆ2
 0.74(0.30)
ˆ0
SUMMARY AND CONCLUSION
Since the Islamic Revolution in 1979, the Iranian
rial has been under pressure and has lost much of
its value. The free market rial-dollar rate has
gradually moved from 70 rials per dollar to
36,300 rials per dollar as of February 2013. While
most of the pressure in late 2011 and 2012 is
attributed to economic sanctions by the U.N., and
the U.S. and other Western countries, we
demonstrate that during the last three decades,
inflation in Iran has been the main source of the
devaluation of the rial.
In this paper we tried to establish the link
between the rial-dollar rate and inflation
differential between Iran and the U.S., following
the purchasing power parity theory. Using
monthly data from January 1979 – July 2015, our
empirical results reveal that the dominating factor
in the decline of the rial is domestic inflation.
During the study period, the Iranian Consumer
Price Index has moved up from 0.43 to almost
ˆ1
 0.79(2.10)
ˆ0
F  2.90
(1993), Phylaktis and Kassimatis (1994), El-Sakka and
McNabb (1994), Sanchez-Fung (1999), Kargbo (2003),
Chortareas and Kapetanios (2004), and BahmaniOskooee and Goswami (2005).
9
This critical value comes from Pesaran et al. (2001,
Table CI, Case III, p. 300).
26
CCJ, V. 1, No. 1- May 2016
and Sahar Bahmani
288, an increase of 670-fold. If we were to
increase the price of the dollar by this ratio, we
would expect a rate of 46,900 rials per dollar.
Thus, the current rate of almost 37,000 rials per
dollar is almost 20% less than the PPP would
predict. Indeed, this is reflected in coefficient
estimates of the Iranian inflation rate in model (4)
and could be due to imperfections in the PPP or
intervention
by
Iran’s
Central
Bank.
Figure 1: Plot of the Rial-dollar rate (EX) and Relative Prices (RP).
40000
30000
20000
EX
10000
0
1982M3
1991M5
2000M7
2009M9
1986M10
1995M12
2005M2
2014M4
2015M7
Months
3.0
2.5
2.0
1.5
RP
1.0
0.5
0.0
1982M3
1991M5
2000M7
2009M9
1986M10
1995M12
2005M2
2014M4
2015M7
Months
Table 1: The Result of ADF Test Applied to Level and First-Differenced Variables
27
CCJ, V. 1, No. 1- May 2016
DF
ADF(1)
ADF(2)
ADF(3)
ADF(4)
ADF(5)
ADF(6)
ADF(7)
ADF(8)
ADF(9)
ADF(10)
ADF(11)
ADF(12)
and Sahar Bahmani
LnEX
ΔLnEX
LnRP
ΔLnRP
-.99081
-.98318
-.97886
-.98864
-.98646
-.97627
-.96496
-.96674
-.98151
-.94171
-.95103
-1.0705
-1.0201
-16.74
-14.08
-10.11
-9.062
-8.551
-8.085
-7.450
-7.005
-7.061
-6.617
-5.354
-5.525
-4.834
0.7798
0.3936
0.3543
0.2987
0.3291
0.3940
0.4013
0.3608
0.3341
0.3262
0.2445
0.1091
-0.0388
-13.27
-10.13
-8.304
-8.032
-8.256
-7.662
-6.632
-6.026
-5.745
-4.942
-4.002
-3.147
-3.101
95% critical value for the augmented Dickey-Fuller statistic = -2.8692
28
CCJ, V. 1, No. 1- May 2016
and Sahar Bahmani
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the Black Market for Foreign Exchange and
PPP: The Case of the Dominican Republic,”
Applied Economics Letters 6(3), 173-76.
REFERENCES
Bahmani-Oskooee, M. (1993), "Black Market
Exchange Rates vs. Official Exchange Rates in
Testing PPP: An Examination of the Iranian
Rial," Applied Economics, Vol. 25, pp. 465-472.
Bahmani-Oskooee, M. (2005), “History of the
Rial and Foreign Exchange Policy in Iran”,
Iranian Economic Review, Vol. 10, pp. 1-20.
Bahmani-Oskooee, Mohsen and Gour G.
Goswami (2005b), “Black Market Exchange
Rates and Purchasing Power Parity in
Emerging Economies,” Emerging Markets
Finance and Trade 41(3), 37-52.
Bahmani-Oskooee, M. and A. Tanku (2008), “The
Black Market Exchange Rate vs. the Official
Rate in Testing PPP: Which Rate Fosters the
Adjustment Process”, Economics Letters, pp. 4043.
Bahmani-Oskooee, M. and S. Hegerty, (2010),
“Purchasing Power Parity in Less-Developed
and Transition Economies: A Review Article”,
Journal of Economic Surveys, Vol. 23 (2009),
pp. 617-658.
Chortareas, G and Kapetanios, G., 2004. “The
Yen Real Exchange Rate may be Stationary
after all: Evidence from Non-linear Unit-root
Tests”, Oxford Bulletin of Economics and
Statistics, Vol. 66, Issue 1, pp. 113-131.
CCJ, V. 1, No. 1 -
29
May 2016
Globalization and Economic Growth
Hsiao-Ping Chu, Tsyangyao Chang
and Tagi-Sagafi-nejad
Globalization and Economic Growth Revisited: A Bootstrap Panel
Causality Test
Hsiao-Ping Chu10, Tsangyao
Chang,11
Tagi Sagafi-nejad12
Abstract
This paper revisits the nature and direction of causation between
globalization and economic growth in nine OECD countries and
China by applying the bootstrap panel Granger causality test to
the data over the period of 1981-2008. Empirical results support
evidence on causality from globalization to economic growth for
Netherlands and the UK; causality from economic growth to
globalization in the US, neutrality for Australia, Belgium,
Canada, France, Italy, and Japan. Based on the empirical results
from this paper, we provide important policy implications for the
OECD countries and China.
Keywords: Globalization; Economic Growth; OECD Countries; China;
Bootstrap Panel Causality Test
INTRODUCTION
Globalization has accelerated considerably since the mid-1980s.
It is not only one of the most important concepts in economic
development but its impact has been hotly debated and
contested. Dunning (2003) wrote about “making globalization
good”, while Stiglitz, another prominent student of the subject,
wrote about globalization and its discontents in 2002 and about
making it “work” in 2006. These and other scholars would agree
with Intriligator (2003) who describes it as representing one of
10
Department of Business Administration, the most influential forces in determining the future of the
Lin-Tung University, Taichung, TAIWAN planet. Furthermore Akinboye (2007) regards it as one of the
11
most dominant forces in the present day world economy.
Department of Finance, Feng Chia
University, Taichung, TAIWAN
Numerous other scholars who have studied the subject, including
12
Corresponding author: Professor
Roderik (1997), Scudder (2010), Zhuang and Koo (2007) have
Emeritus, Loyola University Maryland;
noted that no nation can exist in isolation in the era of
2019 Gustavus Street, Laredo, TX 78043; globalization.
With
unprecedented
pace
of
global
(956) 206-3351; email:
interdependence, increased international trade, foreign direct
sagafinejad@loyola.edu
investment inflows and the Internet linking all countries and
regions of the world, we literally live in a “global village”.
This article has been revised in light of
comments from reviewers. In particular we These, and numerous other studies, confirm that economic
thank Professor Mohsen Bahmani-Oskoee growth is impacted by globalization, and have provided ample
evidence as well as policy recommendations. The importance of
for his thoughtful comments. All
remaining errors and shortfalls are solely
globalization in economic development has triggered scholarly
the responsibility of the authors.
CCJ, V. 1, No. 1 -
30
May 2016
interest in examining this relationship.
Studies
of
the
multidimensional
phenomenon of globalization (and its predecessor,
internationalization) have established that
development can proceed under a variety of
internal and external conditions. There is,
nonetheless, general agreement that development
is much more likely to take place under “open
economy” conditions, which means, inter alia,
exposure to the forces of globalization. Empirical
results differ, depending on the country, time
period, and the methodology employed. In
particular, the lack of consensus on the direction
of causality between globalization and economic
growth provides an opportunity to analyze the
nature of this connection with the help of different
econometric methods.
This study revisits the globalization and
economic growth nexus using the recently
developed econometric techniques - bootstrap
panel Granger causality - proposed by Kónya
(2006) and others to test the causal relationship
between the two. We use the panel data from nine
OECD countries and China over the period 19812008.13 We contribute to the literature by using
this causality analysis to provide new information
regarding the importance of the choice of
statistical techniques in analyzing the direction of
causality. The empirical results show significant
causal relation only in three countries, (i) one-way
Granger causality from globalization to economic
growth in Netherlands and the UK, and (ii) oneway Granger causality from economic growth to
globalization in the US. Interestingly, we do not
find significant causal relation between
globalization and economic growth in the case of
China.
The novelty of this study is three-fold.
First, in detecting the existence of causality, we
rely upon the recently developed panel causality
method – the so-called bootstrap panel test. This
test accounts for cross-sectional dependency and
heterogeneity across countries and is not sensitive
to co-integration among and unit root properties
of the variables involved. Panel data methods
produce reliable and statistically powerful method
in contrast to time series analysis because panel
data combines information from cross-section as
well as time dimensions, and is thus both
synchronic and diachronic. Second, we test for
cross-sectional dependency among countries by
drawing upon the most recent advances in panel
data
econometrics.
In
the
increasingly
interdependent world, countries are highly
integrated; a shock in one country– such as the
2008 turbulence - is easily transmitted to others
through international economic interrelationships
and enhanced contagion. Finally, we take into
consideration heterogeneity across the countries
rather
than
testing
causality
assuming
homogeneity for the entire panel. As stated by
Granger (2003), “investigating causality for the
whole panel is the null hypothesis”. Furthermore,
the homogeneity assumption for estimated
parameters in panel data in the past cannot capture
country-specific characteristics.
The paper is organized as follows. Section
2 explains the hypothesis and reviews the
literature on the globalization and economic
growth relationship. Section 3 describes the data.
Section 4 outlines the econometric methodology.
Section 5 presents our empirical results and
discusses some economic and policy implications
of the empirical findings. Section 6 contains our
13
The reason that we incorporate China with the nine
OECD countries in our study is that China has made
remarkable economic progress over the past two
decades. China’s average annual economic growth rate
over the past two decades (1990-2010) was about
9.818%. In 2011, per capita GDP in China was US$
8.800 (PPP-adjusted). Second, China has become the
world’s first largest trading countries with the foreign
exchange reserves estimated at US$ 3.18 trillion at the
end of 2011. Third, China does not epitomize the
typical open economy; indeed economic growth has
taken place despite the relative closeness of the
economy.
CCJ, V. 1, No. 1 -
31
May 2016
overall conclusions and suggests areas for further
research.
direct investment flows among nations. See
UNCTAD, (2011 and prior issues), Islam, (1999);
and Aninat, (2002).
The third hypothesis is a two-way
Granger causal relationship between globalization
and economic growth, which we call the
“feedback hypothesis”. Economic growth leads a
country to further globalize, which in turn
stimulates economic growth, and vice versa. Thus
globalization and economic growth are mutually
reinforcing.
The fourth hypothesis stipulates that there is no
relationship between globalization and economic
growth, thus the “neutrality hypothesis”. Rodrik
(1998) and Alesina et al. (1994) found no effect of
capital account openness, one of the indicators of
globalization, on economic growth. Similarly,
Carkovic and Levine (2002) found no robust
influence of foreign direct investment on growth.
This indicates that the major competitions of a
country come from its own human, natural and
other unique resources. Economic development
literature has long established these internal and
immutable sources of economic growth and
essential ingredients. See pioneering development
theorists Dennison (1967) and Simon Kuznets
(1968, 1973). Sources of economic growth reside
primarily within each country’s economic,
financial, cultural, political and human resources,
according to these and similarly established
development paradigms.
With respect to the recent empirical
evidence, Dreher (2006) uses panel data for 123
countries in the period 1970-2000 to analyze
whether the overall index of globalization as well
as sub-indexes constructed to measure single
dimensions affect economic growth. Results show
that globalization indeed promotes growth. Until
recently, however, most studies have used a crosssection approach. These include Blomstromet et
al. (1992), Dollar (1992), Alesina et al. (1994),
Rodrik (1998), Chanda, (2001) and Garrett
(2001). All of these studies present, however, only
cross-sectional estimates. Moreover, they do not
adequately control for endogeneity. Their results
might therefore reflect unobserved characteristics
HYPOTHESES AND LITERATURE
To gauge the relation between globalization and
economic growth, we propose four hypotheses.
The first is one-way Granger causality running
from globalization to economic growth, which we
refer to as the “globalization-led growth
hypothesis”. Globalization has entailed an
increase in trade between countries, exporting and
importing have accelerated. Since World War II,
the average annual rate of growth of world trade
has nearly consistently exceeded the rate of
growth of the world economy. The globalization
process has made it possible for countries to sell
goods and services across the globe and purchase
needed goods and commodities from others. One
sign of globalization is integration of markets and
production across countries. By reducing or
eradicating barriers and integrating economies,
globalization stimulates. Numerous scholars have
provided evidence that shows globalization has a
positive effect on economic fundamentals. The
rich literature includes Blomstromet et al. (1992);
Dollar (1992); Borensztein et al. (1998);
Greenaway et al. (1999); Chanda (2001); Dollar
and Kraay (2001);Dunning (2003);Stiglitz (2003);
Dollar (2004); Lumbila (2005); Sylwester (2005).
The second hypothesis is “growth-led
globalization”, i.e., one-way Granger causality
running from economic growth to globalization.
As economic growth accelerates, a country will
attract become more attractive to foreign capital
and foreign workers who seek better
opportunities. (UNCTAD, World Investment
Report, various issues). A country’s absorptive
capacity will enable it to attract and take better
advantages of investments – domestic and foreign.
This also entails acceleration in cross-border
transfer of knowledge, expertise and labor. More
opportunities are made available for the exchange
of various goods and services. This only
accelerates the pace of the country’s globalization.
It is a widely held view, supported by empirical
evidence, that globalization increases foreign
CCJ, V. 1, No. 1 -
32
May 2016
which do not vary over time instead of being the
consequences of globalization; or they might
indicate reverse causality. Aware of the
shortcomings of the cross-section approach, some
recent studies use panel data to examine the
relationship between some dimensions of
globalization and growth (Borensztein et al.,
1998; Greenaway et al., 1999; Dollar and Kraay,
2001; Carkovic and Levine, 2002).
More importantly, most past studies have
either utilized the ordinary least squares (OLS)
method or the traditional panel technique (Alesina
et al., 2000) in investigating the causal
relationship between the two series, but these
procedures do not distinguish between the longrun equilibrium, as well as the long-run and shortrun causalities between the variables. We believe
that traditional studies regarding the relationship
between growth and globalization require a
revision. Chang and Lee (2010) empirically reexamine the co-movement and the causal
relationship among economic growth, the overall
globalization index, and its three main
dimensions: economic, social, and political
integrations, using panel data for 23 OECD
countries for 1970 to 2006. They find out that all
variables move together in the long run when the
political variable is taken into account in their
testing model. The results of the panel causality
test indicate that, although the evidence of shortrun causality is very weak, it does show long-run
unidirectional causality running from the overall
index of globalization, economic globalization,
and social globalization to growth.
globalization (36%), social globalization (38%),
and
political
globalization
(26%).
See
http://globalization.kof.ethz.ch/14
Real
GDP
measured in constant 2005 U.S. dollars comes
from the World Development Indicators data base
(WDI, 2009). Belgium has the highest mean index
at 87.71, while China has the lowest (43.27). The
US has the highest real GDP at $9,374.85 billion,
and Belgium has the lowest ($306.55 billion)
mean. See tables 1 and 2 for the summary
statistics.
METHODOLOGY
Bootstrap Panel Granger Causality Test
Granger causality, a concept coined by Nobel
Prize winner Clive Granger, is a test for
determining whether one time series can be used
to predict the value of another interrelated series.
Since panel data method provides more
information and reliable statistical results
compared to time series methods, this paper
applies the bootstrap panel causality method
recently proposed by Kónya (2006) to determine
the nature of causal linkages between insurance
activities and economic growth. Kónya argues
that the bootstrap panel causality method is robust
to unit root and cointegration properties of
variables, implying that the testing procedure does
not require any pre-testing for unit root and
14
Kacowicz (1999) claims that globalization means
many different things for different people with an
intensification of economic, political, social, and
cultural relations across borders. Park (2003) also
notices that on the basis of multi-layer perspectives of
globalization, a large body of research is identified that
globalization is constructed out of complex interactions
among social, political, and economic processes
together with materiality. This multi-scalar viewpoint
shows that globalization is not only a process of
economy, but is also constituted by the activities of
society and politics. Therefore, we use the overall
Globalization index in our study to test the causal link
between globalization and economic growth. Details
about how to construct the index see Dreher (2006).
DATA
The annual data used in this study cover the
period 1981-2008 for nine OECD countries
(Australia, Belgium, Canada, France, Italy, Japan,
Netherland, the UK, and the US) and China.
Variables include overall globalization index and
real GDP (RGDP). We we use Dreher (2006)
globalization (KOF) index. This index divides
globalization in three dimensions: economic,
social, and political integration. We focus on the
overall index, which is made up of economic
CCJ, V. 1, No. 1 -
33
May 2016
cointegration. Variables are used in their level
forms irrespective of time series properties. This
feature of the bootstrap panel causality arises from
generating country-specific critical values from
the bootstrapping method and so the variables in
the system do not need to be stationary. This in
turn implies that the variables are used in level
form irrespectively of their unit root and
cointegration properties (Kónya, 2006).15 It is
important to note here that using the level of
variable directly in empirical analysis may play a
crucial role in determining causal linkages, since
differencing variables to make them be stationary
(i.e., using difference form of variables) may lead
to a loss of trend dynamics of series .
The bootstrap panel causality approach of
Kónya entails first estimating the system
described by means seemingly unrelated
regression (SUR) to impose zero restrictions for
causality by the Wald principle, followed by
generating bootstrap critical values. Note that
since country-specific Wald tests with the
country-specific bootstrap critical values are used
in this panel causality method, it does not require
the joint hypothesis for all countries in the panel.
The system for panel causality analysis includes
two sets of equations that can be written as
follows:
ly1
lx1
i 1
i 1
lx1
i 1
i 1
lx1
i 1
i 1
i 1
i 1
ly2
lx2
i 1
i 1
x2,t   2,2    2,2,i y2,t i    2,2,i x2,t i   2,2,t
ly2
lx2
i 1
i 1
xN ,t   2, N    2, N ,i yN ,t i    2, N ,i xN ,t i   2, N ,t
(2)
where y denotes the real income, x refers to the
indicator of globalization, N is the number of the
members of panel (j=1,…,N), t is the time period
(t=1,…,T), l is the lag length. In this system
definition,
each
equation
has
different
predetermined variables while the error terms
might be cross-sectionally correlated and hence
these sets of equations are the SUR system. To
test for Granger causality in this system,
alternative causal relations for a country are likely
to be found: (i) there is one-way Granger causality
from X to Y if not all 1,i are zero, but all  2,i are
zero; (ii) There is one-way Granger causality from
Y to X if all 1,i are zero, but not all  2,i are zero;
(iii) There is two-way Granger causality between
X and Y if neither 1,i nor  2,i are zero; and (iv)
There is no Granger causality between X and Y if
all 1,i and  2,i are zero.
Before proceeding to estimation, the issue
to be considered is to determine optimal lag
lengths.16 Since the results from the causality test
y2,t  1,2   1,2,i y2,t i   1,2,i x2,t i  1,2,t
ly1
lx2
x1,t   2,1    2,1,i y1,t i    2,1,i x1,t i   2,1,t
y1,t  1,1   1,1,i y1,t i   1,1,i x1,t i  1,1,t
ly1
ly2
yN ,t  1, N   1, N ,i yN ,t i   1, N ,i xN ,t i  1, N ,t
16
As indicated by Kónya (2006), this is a crucial step
because the causality test results may depend critically
on the lag structure. In general, too few or too many
lags may cause problems. Too few lags mean that some
important variables are omitted from the model and
this specification error will usually cause bias in the
retained regression coefficients, leading to incorrect
conclusions. On the other hand, too many lags waste
observations and this specification error will usually
increase the standard errors of the estimated
(1)
and
15
We refer to Kónya (2006) for the details of
bootstrapping method on how to generate country—
specific critical values.
CCJ, V. 1, No. 1 -
34
May 2016
N 1
may be sensitive to the lag structure, determining
the optimal lag length(s) is crucial for robustness
of findings. For large panels, varying lag structure
for both equations and variables would cause to
substantial computational burden. Following
Kónya (2006), maximal lags are allowed to differ
across variables, but to be the same across
equations. The system is estimated for each
possible pair of ly1 , lx1 , ly2 , and lx2 respectively
by assuming from 1 to 4 lags and then choose the
combinations which minimize the Schwarz
Bayesian Criterion.17
N
LM  T   îj2
(3)
i 1 j i 1
where ̂ ij is the sample estimate of the pair-wise
correlation of the residuals from Ordinary Least
Squares (OLS) estimation of equation (1) for each
i. Under the null hypothesis, the LM statistic has
asymptotic chi-square with N ( N  1) / 2 degrees
of freedom. It is important to note that the LM test
is valid for N relatively small and T sufficiently
large. For the large panels where T   first
and then N   , Pesaran (2004) proposed the
scaled version of the LM test as follows:
Cross-Sectional Dependence Tests
One important assumption in the bootstrap panel
causality is the existence of cross-sectional
dependency among the countries in the panel. In
the case of cross-sectionally correlated errors,
estimating the system described with the SUR
estimator is more efficient than the ordinary least
squares estimator (OLS) since the country-bycountry OLS estimator is not able take into
account cross-sectional dependency. Thereby,
testing cross-sectional dependency is crucial for
the estimator selection and hence panel causality
results.
To test for cross-sectional dependency, the
Lagrange multiplier (LM) test of Breusch and
Pagan (1980) is one of the familiar tests. The null
hypothesis of no cross-section dependenceH 0 : Cov(uit , u jt )  0 for all t and i  j - is
1/2


1
CDlm  

 N ( N  1) 
N 1
N
  (T ˆ
i 1 j i 1
2
ij
 1)
(4)
Under the null hypothesis with, the CDlm
test converges to the standard normal distribution.
The CDlm test subjects to substantial size
distortions when N large and T small. Pesaran
developed a more general cross-sectional
dependency tests that is valid for the panels where
T→∞ and N→∞ in any order. The so-called CD
test is as follows:

 2T   N 1 N
CD  
    îj 
 N ( N  1)   i 1 j i 1 
(5)
Under the null hypothesis, the CD test has
asymptotic standard normal distribution. Pesaran
indicates that the CD test has exactly mean zero
for fixed T and N and is robust to heterogeneous
dynamic models including multiple breaks in
slope coefficients and/or error variances, so as
long as the unconditional means of yit and xit are
time-invariant and their innovations have
symmetric distributions. However, the CD test
will lack power in certain situations in which the
population average pair-wise correlations are zero,
but the underlying individual population pair-wise
correlations are non-zero (Pesaran et al., 2008,
p.106). Pesaran et al. (2008) proposes a bias-
tested against the alternative hypothesis of crosssection dependence H1 : Cov(uit , u jt )  0 , for at
least one pair of i  j . In order to test the null
hypothesis, Breusch and Pagan (1980) developed
the LM test as:
coefficients, making the results less precise.
17
In order to save space, results from the lag selection
procedure are not reported here but available upon
request.
CCJ, V. 1, No. 1 -
35
May 2016
adjusted test which is a modified version of the
LM test by using the exact mean and variance of
the LM statistic. The bias-adjusted LM test is:
LM adj
N
i 1
(T  k ) ij2  Tij
 2T
 N 1 N
 
   îj
2
 Tij
 N ( N  1)  i 1 j i 1
and

x
 x M
   

i
 i
2
i
i
WFE
(7)
where  i is the pooled OLS and WFE is the
weighted fixed effect pooled estimation of the
regression model yit  i  ixit   it ; M  is an
identity matrix, the  i2 is the estimator of  i2 .18
The standardized dispersion statistic is then
defined as:
(6)
where Tij

S   i  WFE
 Tij2 are respectively the exact
mean and variance of (T  k ) ij , that are
2
 N 1S  k 
 N

2k 

provided in Pesaran et al. (2008, p.108). Under the
null hypothesis with first T→∞ and then N→∞,
the LM adj test is asymptotically distributed as
(8)
Under the null hypothesis with the
condition of ( N , T )   so long as
standard normal.
Slope homogeneity tests
Another important point in the bootstrap panel
causality approach is cross-country heterogeneity.
Therefore, one needs to determine whether slope
coefficients are homogeneous. In order to test the
null hypothesis of slope homogeneity against the
alternative hypothesis, one familiar approach is to
apply the Wald principle. This principle is valid
for cases where a) the cross-section dimension (N)
is relatively small; b) the time dimension (T) of
the panel is large; c) the explanatory variables are
strictly exogenous; and d) the error variances are
homoscedastic. Swamy (1970) developed the
slope homogeneity test that allows for crosssection heteroscedasticity (Pesaran and Yamagata,
2008). However, the Wald and Swamy tests are
applicable for panel data models where N is small
relative to T. Pesaran and Yamagata (2008)
proposed a standardized version of Swamy’s test
(the so-called  test) for testing slope
homogeneity in large panels. The  test is valid
as ( N , T )   without any restrictions on the
relative expansion rates of N and T when the error
terms are normally distributed. In the  test
approach, the first step is to compute the
following modified version of the Wald-Swamy
test:
N / T   and the error terms are normally
distributed, the  test has asymptotic standard
normal distribution. The small sample properties
of  test can be improved under the normally
distributed errors by using the following bias
adjusted version:
 N 1S  E ( zit ) 
 adj  N 
(9)



var(
z
)
it


E
(
z
)

k and the variance
where the mean
it
var( zit )  2k (T  k 1) / T  1 .
EMPIRICAL RESULTS, ECONOMIC, AND
POLICY IMPLICATIONS
As outlined earlier, testing for the cross-sectional
dependence and slope homogeneity in the
bootstrap panel causality analysis is crucial for
selecting the appropriate estimator and for
imposing restriction for causality. Taking into
account cross-sectional dependency in empirical
analysis is important where countries are
integrated and have a high degree of economic
globalization. Thus, our empirical study starts
18
In order to save space, we refer to Pesaran and
Yamagata (2008) for the details of Swamy’s test and
the estimators describe in equation (7).
CCJ, V. 1, No. 1 -
36
May 2016
with examining the existence of cross-sectional
dependency and heterogeneity across the
countries concerned. To investigate the existence
of cross-sectional dependence, we carried out four
different tests ( CDBP , CDlm , CD , and LM adj )
approach. The results from the bootstrap panel
Granger causality analysis20 are reported in Tables
4-5. These results show one-way Granger
causality running from globalization to economic
growth for Netherland and the UK. The remaining
eight countries show no relation between
globalization and economic growth. As for the
direction of causality between economic growth
and globalization, we find one-way Granger
causality running from economic growth to
globalization for the US only and independence
between economic growth and globalization for
the rest of the nine countries. Our empirical
evidence suggests that globalization is materially
associated with economic growth only for two
countries, i.e., Netherland and the UK. In sum, our
results show that the globalization-growth nexus
varies across countries with different conditions.
Several interesting things are to be
gleaned from these results. First, we found oneway Granger causality running from economic
growth to globalization only in the case of the US.
This further explains why the US is still the
dominating country with respect to the
globalization process. Second, regarding the
direction of causality from globalization to
economic growth, we find one-way Granger
causality running from globalization to economic
growth only in the case of the Netherland and the
UK, but not in the rest of the eight countries.
These results indicate a strong mutual relationship
between globalization and economic development
in both Netherland and the UK; the higher the
degree of globalization, the higher the economic
growth. But this does not seem to hold in the other
eight countries. We suspect some other factors
may affect the economic growth of these
countries. These could be akin to the so-called
“Kuznets Curve”.21 Our results are consistent with
and reported the results in Table 3. It is clear that
the “no cross-sectional dependence” hypothesis is
rejected at the conventional levels of significance,
implying that the SUR method is appropriate,
rather than country-by-country OLS estimation
assumed in the bootstrap panel causality
approach. This finding implies that a shock
occurred in one of these nine OECD countries
and/or China seems to be transmitted to other
countries.19
Table 3 also reports the results of the
Pesaran and Yamagata (2008) slope homogeneity
tests. Both tests reject the null hypothesis of the
slope homogeneity hypothesis, and support the
country-specific heterogeneity. The rejection of
slope homogeneity implies that the panel causality
analysis results in misleading inferences by
imposing homogeneity restriction on the variable
of interest. Hence, direction of causal linkages
between globalization and economic growth may
differ across the selected countries.
The existence of the cross-sectional
dependency and the heterogeneity across OECD
countries and China provides supporting evidence
for the suitability of the bootstrap panel causality
19
The cross-sectional dependency further implies that
examining causal linkages between insurance activity
and economic growth in these nine OECD countries
and China requires taking this information in
estimations of causality regressions into account. In the
presence of cross-sectional dependency, the SUR
approach is more efficient than the country-by-country
ordinary least-squares (OLS) method (Zellner, 1962).
Therefore, the causality results obtained from the SUR
estimator developed by Zellner (1962) will be more
reliable than those obtained from the country-specific
OLS estimations.
20
See Kónya (2006) for the bootstrap procedure and
how the country specific critical values are generated.
21
The so-called Kuznets Curve, named after Simon
Kuznets, an early Nobel Prize-winner, argued that,
income equality worsens before it gets better as a
CCJ, V. 1, No. 1 -
37
May 2016
these expectations. Third, we found that the
neutrality hypothesis holds for China. This indeed
comes as a surprise because China has
experienced significant economic growth in the
past few decades. China’s average annual
economic growth rate over the past two decades
(1990-2010) has been over 9%. We would expect
at least a one-way or feedback to exist between
globalization and economic growth in China. In
fact, a study by Chang (2002), using 1987-1999
data, shows that a feedback effect does exist
between the degree of openness and economic
growth in China. Our results are not consistent
with this expectation. One plausible explanation
of the neutrality (no relationship) is that the
overall globalization index is made up of
economic (36%), social (38%), and political
globalization (24%) and China has the lowest
mean overall globalization index of 43.27,
compared to the other nine OECD countries.22 In
fact, Chang and Lee (2010) point out that, if
globalization is viewed only from the economic
aspect, earlier empirical evidence seems
ambiguous. For instance, using cross-country
growth regressions estimated for the period 19201990, Vamvakidis (2002) finds that the positive
correlation between openness and growth is only a
recent phenomenon. Some point to strong positive
impact of trade openness on growth, while others,
such as Rodrik (1997) and Scudder (2010) see
only minor or mixed effects. As noted before,
globalization is a complex process with cultural,
economic, political, social, and technological
dimensions (Held et al., 2000). Wade (2009)
argues that the political economy of policy
reforms play an important role in global
imbalances and re-organizations. And Harrison
(1996) and Rodrıguez and Rodrik (2001) cast
doubt on the statement that growth only benefits
from openness.
Based on the results from the panel
causality analysis, it is reasonable to conclude that
the nature of the causality between globalization
and economic growth in Australia, Belgium,
Canada, France, Italy, Japan, and China is
generally consistent with the neutrality
hypothesis. Accordingly, one policy implication
for these countries is that policies aimed at
enhancing globalization do not exert an adverse
impact economic growth and that globalization
may not be affected by economic performance.
One can attribute the neutrality between
globalization and economic growth to a relatively
small contribution of globalization to overall
output under certain circumstances. In some cases,
globalization may have little or no impact on
economic growth. Our results seem to contrast
with those found in Chang and Lee (2010), whose
findings support the arguments that globalization
is one of the most powerful weapons for
stimulating economic growth, in particular, in
OECD economies (Saich, 2000; Dreher, 2006;
Mishkin, 2009).
We conclude by arguing that a one-sizefits-all strategy, with respect to either
globalization or economic development, is not
optimal for all countries, including the OECD
countries we have studied. In the broad scheme of
things, the choice between the market and
government is a false one because neither can ever
be perfect, and thus the Wade (1990) advice, to
wit, “governing the market”, is indeed the
balanced approach. The overall relationship is
neither linear nor homogeneous across time and
space. Indeed history demonstrates cases where
nations have failed, and scholars such as Rostow
(1970) has provided penetrating analyses
concerning the rise and fall of countries. Others,
country’s economy develops. He might have also
added “and further globalized”. See Kuznets (1968 and
1973). The association between the two factors changes
in the course of economic development. We leave
further exploration of this curve and its applicability to
the tests presented in this article to a future occasion.
22
We would expect economic globalization will affect
economic growth in China. Future study will be in this
direction to test the causal relation between these three
components and economic growth for the 10 countries.
CCJ, V. 1, No. 1 -
38
May 2016
including Acemoglu and Robinson (2012) have
highlighted the pivotal role of institutions. The
state and the market are complements rather than
substitutes. More importantly, the relationship
between the state and the market cannot be
defined once-and-for-all in any dogmatic manner
but evolve over time in an adaptive manner as
circumstances change (Nayyar, 2006). In the end,
although market openness and therefore
globalization matters, good policy matters more.
As Fischer (2001) and Dunning (2003) and
Stiglitz (2003) have noted, if the process is
inevitable, the question then is not whether to
globalize or not but rather how best to take
advantage of the opportunities afforded by
globalization while minimizing its adverse effects.
While the opportunities for growth provided by
global integration could be substantial, they are
not guaranteed
comprised of economic (36%), social (38%), and
political globalization (24%). Further studies
could focus on the causal relation between each of
these three components and economic growth.
ACKNOWLEDGEMENT
We would like to thank László Kónya for
providing us with TSP codes for the bootstrap
panel causality. We are grateful to Takashi
Yamagata for GAUSS codes that modified by
Saban Nazlioglu for Swamy’s slope homogeneity
test on the basis of Yamagata’s procedure. We also
acknowledge helpful comments by William
Gruben and Siddharth Shankar. Any remaining
errors are the authors’ own responsibility.
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CONCLUSIONS
This study applies bootstrap panel Granger
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CCJ, V. 1, No. 1 -
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May 2016
Table 1. Summary Statistics of Globalization Index
Mean
Max.
Min.
Std. Dev.
Skew.
Kurt.
J.-B.
Australia
83.89
92.26
73.61
6.95
-0.16
1.43
2.98
Belgium
87.71
92.78
77.58
5.03
-0.67
2.11
3.04
Canada
83.71
88.76
79.34
3.46
-0.02
1.33
3.27
China
43.27
61.65
23.87
13.99
-0.09
1.47
2.76
France
80.38
88.03
68.45
6.13
-0.35
1.84
2.17
Italy
70.32
81.48
54.19
10.14
-0.37
1.58
2.98
Japan
56.67
70.81
45.49
8.16
0.12
1.69
2.07
Netherland
87.44
92.04
82.58
3.54
-0.09
1.39
3.05
UK
74.49
83.09
68.89
4.95
-0.46
1.78
2.73
US
75.79
81.21
66.16
4.67
-0.88
2.63
3.80
Skew.
Kurt.
J.-B.
Note: 1. The sample period is from 1981 to 2008.
Table 2. Summary Statistics of Real GDP
Mean
Max.
Min.
Std. Dev.
Australia
604.83
1201.29
384.72
187.45
1.66
5.47
20.01***
Belgium
306.55
550.76
161.01
87.61
0.71
3.72
2.91
Canada
729.29
1328.61
511.62
208.39
1.31
3.96
8.99**
China
1161.75
3130.69
658.61
604.50
1.89
5.91
26.59***
France
1628.00
2831.21
875.43
439.67
0.63
3.60
2.25
Italy
1233.97
2003.72
684.63
301.00
0.29
3.18
0.44
Japan
3576.93
5640.00
1248.00
133.06
-0.53
2.05
2.37
588.04
1069.93
371.23
185.00
1.35
3.89
9.48***
UK
1719.39
2908.93
1015.59
517.13
0.86
2.96
3.48
US
9374.85
13206.38
5865.93
2365.88
0.18
1.74
2.01
Netherland
Note: 1. The sample period is from 1981 to 2008.
2. ** and *** indicate significance at the 0.05 and 0.01 levels, respectively.
CCJ, V. 1, No. 1 -
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May 2016
Table 3. Cross-sectional Dependence and Homogeneous Tests
Test
Statistic
LM
276.141***
CDLM
28.301***
CD
13.978***
LM adj
55.628***

23.154***
 adj
5.239***
Note: 1. *** indicates significance at the 0.01 level.
Table 4. Causality from globalization to economic growth
Bootstrap Critical Value
Wald Statistics
10%
5%
1%
Australia
4.8411
5.7816
8.5843
15.7172
Belgium
3.2820
5.8622
8.4553
16.4531
China
2.0284
5.6418
8.1155
15.0025
Canada
4.1124
6.0625
8.5954
15.4994
France
1.6139
5.3982
8.0412
14.6628
Italy
1.0668
5.6665
8.1984
14.9764
Japan
1.5936
6.3606
9.3566
17.1660
Netherland
12.1679**
5.8666
8.7702
17.5820
United Kingdom
13.4621**
5.3877
7.8499
14.9809
0.4879
5.1813
8.0031
15.2699
United States
Note: 1. ** indicates significance at the 0.05.
2. Bootstrap critical values are obtained from 10,000 replications.
CCJ, V. 1, No. 1 -
43
May 2016
Table 5. Causality from economic growth to globalization
Bootstrap Critical Value
Wald Statistics
10%
5%
1%
Australia
0.1104
5.7816
8.5843
15.7172
Belgium
0.1034
5.8622
8.4553
16.4531
China
0.4489
5.3136
8.1155
15.0025
Canada
2.6112
6.0625
8.5854
15.4994
France
3.2117
5.3982
8.0412
14.6628
Italy
2.9891
5.6665
8.1984
14.9764
Japan
4.5209
6.3606
9.3566
17.1650
Netherland
0.1168
5.8666
8.7702
17.5820
United Kingdom
0.4083
5.3877
7.8498
14.9809
United States
6.8206*
5.4995
8.0031
15.2699
Note: 1.* indicates significance at the 0.1 level.
2. Bootstrap critical values are obtained from 10,000 replications.
CCJ, V. 1, No. 1 -
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May 2016
Natural Resources and Economic Development
Hamidullah Farooqi
and Nader H. Asgary
Natural Resources and Economic Development: The Case of
Afghanistan
Hamidullah Farooqi
Faculty of Economics,
University of Kabul
Former Minister of Transport
and Civil Aviation
Islamic Republic of Afghanistan
and
Nader H. Asgary
Professor of Management and
Economics
Bentley University, Waltham,
Massachusetts, USA
Abstract
This paper examines the role of natural resources in the
sustainable economic development of Afghanistan. We analyze
Dutch disease theory and its implication for the case of
Afghanistan. Additionally, we apply the Community Based
Natural Resource Management (CBNRM) strategy for effective
resource management and avoidance of Dutch disease.
CBNRM will benefit all stakeholders by engaging them in the
decision-making and implementation process. We describe
historical lessons learned are by other countries with abundant
natural resources to support sustainable development. We
describe various ways in which natural resources can be used to
serve the best interest of Afghanistan in general as well as
distinct Afghan communities.
Keywords: Natural resources, Extractive industries, Dutch Disease, Community
Based Resource Management; Development, Afghanistan.
INTRODUCTION
Afghanistan’s untapped natural resources present an opportunity
for economic development and for the advancement of regional
and international cooperation.
However, because of the
country’s inadequate development planning, not enough research
has been conducted to explore its available resources and
potential benefits. Evaluations of natural untapped resources are
usually conducted by a government in collaboration with experts
but because Afghanistan has been engaged in internal and
external wars during the past thirty-five years, very few such
studies have been conducted. Some initial studies on mining
were conducted during the 1970s and80s which indicated that
the country had nearly $1 trillion USD in untapped mineral
deposits. More recent studies indicate that there are more
reserves than were previously known Later assessments have
estimated the amount to be nearly $3 trillion USD (Reuters,
October 25, 2010) an amount which could fundamentally alter
Afghanistan’s economic development path, assuming that
strategies for the appropriate allocation of resources for
development are initiated. These mineral deposits are scattered
throughout the country, with a large segment along the border
with Pakistan; this presents security and geographical challenges
for building mining infrastructure which must be met.
CCJ, V. 1, No. 1 -
45
May 2016
Hamidullah Farooqi
and Nader H. Asgary
In 2010, The New York Times reported “with
virtually no mining industry or infrastructure in
place today, it will take decades for Afghanistan to
exploit its mineral wealth fully. The country has no
mining culture.” One of the missed opportunities of
the international community’s involvement in the
country during the last decade, is the discovery of
Afghanistan’s vast mineral wealth, which could
have helped to generate jobs and revenue, and
therefore development.
Afghanistan’s newly discovered oil and
gas reserves (with an estimate of 315 million
barrels of crude oil and 120 billion cubic meters of
gas), creates an opportunity for production and
export, which could generate much needed foreign
exchange. The North Afghan-Tajik Basin and the
South Katawaz and Helmand Basin provide the
potential for the exploration and development of
hydrocarbon. In fact, a number of oil and gas
reserves have already been discovered in the
North. According to the U.S. Geological Survey
and the Afghan Ministry of Mines and Petroleum,
the estimated undiscovered oil and gas reserves
are much larger than thought, especially in the
north and northwest parts of the country. The
economic growth and industrialization of
Afghanistan also requires the expansion of the
electric power generation and distribution system.
There is already a huge demand for electricity, and
the expansion of various manufacturing sectors
will further increase the demand. Afghanistan’s
electric power supplies in 2010 were 470 MW, of
which 100 MW was imported from neighboring
countries (USAID 2010-2013; Da Afghanistan
Breshna Sherkat, 2010). Recently, Afghanistan has
also begun exploring wind and solar technologies.
This paper evaluates Afghanistan’s natural
resources and proposes a strategic approach to
exploring resources for advancing sustainable
development and avoiding Dutch Disease. Many
resource rich countries have been unable to deal
with this important issue appropriately. The
potential for weakening other segments of the
economy is often referred to as “Dutch Disease”
because of the upswing in the extractive industries
revenue to the economy. According to our
literature survey of scholarly research, there are no
studies that have examined this issue for the case
of Afghanistan. This paper will offer methods for
preventing Dutch Disease in Afghanistan, and
provide a roadmap for development using natural
resources.
The Community Based Natural Resource
Management (CBNRM) strategy by engaging
stakeholders actively in the process includes
incorporating national and local interest for
growth. CBNRM provides a way for diverse (and
perhaps competing) parties to work together for
the common good. Scholars (Child, 2003; Sebele,
2010; Walle and Asgary, 2014) have shown that
nurturing and empowering local governments
provides a better outcome and will further help the
peoples of Afghanistan to equitably participate in
the extraction of their nation’s natural resources.
Earlier research in this area has not been adequate,
perhaps because the country’s involvement in
internal and external wars. This paper intends to
fill the gap by providing learning lessons from
countries that that have used their abundant natural
resources for development while avoiding the
Dutch Disease fatigue or the “resource curse”.
We discuss various ways in which natural
resources can be developed with an eye towards
what is in the best interest of Afghanistan as a
whole,
while
serving
distinct
Afghan
communities. This approach offers solutions in
which all stakeholders can simultaneously benefit.
Other important issues such as security, political
stability,
governance,
human
resource
development, technology, and regional economic
cooperation are essential and require in-depth
studies but it is not the focus of this study.
EXTRACTIVE INDUSTRIES AND
DEVELOPMENT
An extractive industry is defined as “anything
capable of being extracted from the earth.”
International organizations define extractive
industries to include oil, gas and mineral extracts.
Energy has been defined as oil and petroleum gas.
CCJ, V. 1, No. 1 -
46
May 2016
Hamidullah Farooqi
and Nader H. Asgary
The Extractive Industries Transparency Initiative
refers to oil, gas, and minerals as extractive
industries (USEITI, 2015). Potential oil and gas
resources are important parts of Afghanistan’s
extractive industry. This requires collaboration and
partnership of Afghanistan National Oil Company
with regional and international oil companies that
have vast experience in oil and gas development.
The interaction of the energy sector with
the environment should receive serious attention,
to avoid the sort of environmental damage that
other developing economies (i.e., Nigeria) have
encountered in the extraction process. Afghanistan
has never possessed heavy industry before and as a
result it has little, if any, history of environmental
protection. The key question is how this industry
and its tangential organizations and companies can
be developed in a responsible way while
advancing development. It is critical to minimize
corruption in this newly explored industry. This
will require ethics and social responsibility
training for all officials in the government,
especially those with ties to the industry.
Furthermore, studying how and in what ways the
Ministry of Mines and Petroleum can advance
regional collaboration includes the assessment and
approval process for foreign contractors by the
government. Lack of technical capability is a
major impediment to Afghanistan’s economic
development. Development of internal energy
resources will need technological know-how,
financial support, and development of human
resource capabilities. Distribution issues and
fundamental policy issues must also be addressed.
Pricing policy, public private partnership,
contractual agreements with foreign oil companies
are among issues that need to be studied in detail.
In addition to its rich extractive natural
resources, its location can also serve as a
locational comparative advantage, to create a
greater impact in the development. Afghanistan
can reap benefits from trade between Central
Asian countries and the rest of the South Asian
Association for Regional Cooperation (SAARC).
It is seen as a viable gateway for South Asian
countries to access the oil and gas resources of
Central Asian Republics like Tajikistan,
Turkmenistan, and Uzbekistan. The mineral
deposits in Afghanistan have lured economically
and politically powerful neighboring countries like
India and China to offer mining contracts.
Regional economic agreements are
expected to boost the economies of all countries
involved. Economic collaboration is also
potentially good for peace and security in the
region. For example, Afghanistan should consider
participating in the current discussion between
Iran and Pakistan on development of the gas
pipeline between the two countries, with potential
extension to India. It should take into account the
cost-benefit analysis, both economically and
politically.
NATURAL RESOURCES CURSE, ALSO
KNOWN AS DUTCH DISEASE
The term Dutch Disease was first coined by
economist in 1977 when describing the events
associated with natural gas deposits in the
Netherlands, discovered in 1959 and developed
afterwards. Events associated with this economic
bonanza suggest that such rapid development
might have had a dampening effect on other
aspects of the Dutch economy. This resource
curse, discussed among economists and policymakers as a concern for countries with large
endowments of natural resources, such as oil and
gas and can result in worse performance in terms
of economic development and good governance
than in countries with fewer natural resources
(Humphreys et al., 2014). The Dutch Disease,
volatility, unequal expertise, corruption, retarded
economic performance, and poor policies, are
forces that work against the success that one
would expect to come from natural resource
wealth. Diamond and Mosbacher (2014) discuss
what causes the resource curse and suggest a
strategy to combat it. They explain how, “…oil
booms have poisoned the prospects for
development in Africa’s oil-rich states”, citing the
case of Uganda. The surge of money from these
extractive industries can cause inflation, distort
exchange
rates,
and
undermine
the
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competitiveness of traditional export sectors such
as agriculture.
Scholars (Cullen and Noland, 2014; Durns, 2014;
Diamond and Mosbacher, 2014; Humphreys et al.
2007) have discussed the “paradox of plenty” and
“Dutch disease” suggesting these can create an
economic and cultural atmosphere that does not
advance development and, if not strategically
addressed, could create comparative disadvantages
for the country. Cullen and Noland (2014) state
that, “Dutch Disease suggesting that refers to the
tendency of real exchange rates to appreciate
following the discovery of a valuable commodity
and rendering traditional industries internationally
uncompetitive” (30). Some scholars argue that
having such a wealth of natural resources may not
necessarily be as much of a positive windfall as it
seems. However, others argue, based on economic
theory as well as real-world examples, that
valuable natural resources may actually hinder
long term economic growth due to the negative
consequences that may occur in its overall
economic performance, domestic policy, and
international affairs. By discussing both the
immediate and long-term aspects of these negative
consequences of a country’s development of its
natural resources, better natural resource
management can be achieved.
One of the main problems of countries
afflicted with Dutch Disease is that domestic
prices of goods and services are raised because
incomes have not been adjusted accordingly; and
therefore the population cannot afford to buy
them. This substantial price increase is primarily
driven by the fact that the extra currency entering
the country from the natural resources exports is
converted into local currency considerably
swelling the money supply and therefore pushing
up domestic prices, thereby resulting in a higher
real exchange rate.
After the Netherlands discovered natural
gas in the North Sea in the 1970s, the Dutch found
that their manufacturing sector suddenly began to
perform more poorly than anticipated (EbrahimZadeh, 2003). When a sudden rise in the value of
its natural resource exports caused an appreciation
in the real exchange rate. This, in turn, made
exporting non-natural resource commodities more
difficult and made competing with a wide range of
imported
commodities
almost
impossible
(Humphreys et al., 2014). The problem is the
volatility of income that comes from three sources:
variation in rates of extraction, variability in the
timing of corporations’ payments to the state, and
fluctuations in the price of the natural resources
produced (Humphreys et al., 6). This sort of
volatility can make it difficult for governments
and companies to predict the impact resources will
have a nation’s economy.
While many countries have failed to
overcome the impact of Dutch Disease, a few such
as Canada, Chile, Norway, and Botswana have
successfully avoided the potential pitfalls of the
resource curse. Canada has an abundance of
natural resources and is a major net exporter of
natural gas and coal and holds the world’s second
largest oil reserves after Saudi Arabia. Durns
(2014) states that Canada also has a major mining
sector and is “the third largest producer of primary
aluminum and diamonds and in the top five for
cadmium, molybdenum, nickel, platinum group
metals, salt, titanium concentrates, elemental
sulfur, and uranium”. In the case of Canadian
extractive industries, there is transparency and
active engagement of key stakeholders.
The
country’s provincial bodies are involved in
royalties, taxes, incentives, permits and licensing
for oil and natural gas, and the National Energy
Board oversees regulation, and ultimately reports
to Parliament.
Chile, controls an estimated 20% of the
world’s copper reserves and is the number one
producer, accounting for 11% of total global
production. While the importance of copper to its
economy leaves room for susceptibility to
commodity booms and busts, Chile has largely
managed to overcome concerns that come with
non-renewable resource wealth. There is a great
degree of transparency in the operations, revenues,
royalties, taxes, and other regular reports and the
overall costs and benefits of the industry are
shared with public.
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In the 1960s when it discovered vast
reserves of oil and gas, Norway used a novel
approach in managing this windfall by extending
the benefits of these resources beyond short-term
gains. With the mindset of avoiding the resource
curse and fluctuation in the commodity market, the
government set aside 100% of its oil earnings and
only drew down 4% per year to use for public
services. This creative approach has avoided the
resource curse and encouraged other countries
such as Israel, Chile, and Colombia to adopt a
similar
approach,
thus
averting
wealth
concentration,
currency
appreciation,
and
mismanagement.
Since 1970 Botswana has become the
world’s largest producer of diamonds, accounting
for, “…three-quarters of its exports and over 40%
of its GDP…” Jefferis (2009, 72). In contrast to
many other African countries that are resourcerich and prone to conflict and corruption,
Botswana has managed to avoid the resource
curse. The African Development Bank
characterizes Botswana’s approach as ‘three
pronged.’ First, the country pursued economic
diversification. Second, it divested revenues,
seeking to make the economy less susceptible to
the fluctuations of global markets. Third, it
invested its surplus revenues.
Doraisami (2015) discusses the case of
Malaysia and its resource curse caused by its oil
exploration. In 1974, the Malaysian government
established the Petroleum Development Act
(PDA), aiming to establish an institution that
would manage and control oil revenues once they
became commercially available Six years later in
1980, the National Depletion Policy was enacted
to limit oil production to less than 300,000 barrels
a day. It was initially believed that the amount of
oil was limited. However, more reserves were later
discovered. Another safety measure was the
Investments Promotion Act of 1986 which aimed
to ignite the economy promoting foreign
investment.
The combination of these various policies,
as well as some privatization, led to the growth of
a larger middle class in Malaysia. As focus shifted
away from the electronics industry, the economy
began to stagnate. Although it was becoming a
high-income country, it then moved away from
manufacturing and leaned on foreign capital,
causing its growth to come to a halt. Although
Malaysia avoided the resource curse, it was unable
to compete on prices with other countries in the
region and fell into “the Middle Income Trap”.
Even though the country avoided widespread
poverty, it was no longer able to reach its “2020
Vision” of becoming a high income country. In
many instances unstable and ineffective
institutions cause countries to fall under the
resource curse. Even though the Malaysian
government tried to develop effective institutions
at the time its oil was discovered, it was
nevertheless unsuccessful in reaching its target of
becoming a high-income country.
THE PARADOX OF DUTCH DISEASE:
FOUR CASES
Four countries from different regions with
different levels of development, cultures, and
histories have used various approaches to
successfully address the paradox of plenty and the
avoidance of Dutch Disease. Learning from their
experience may be helpful to Afghanistan.
Transparency and the active participation of
stakeholders such as central and local governments
are key success factors.
Providing detailed
explanations to the public about operations,
revenues, royalties, and taxes will build citizens’
trust in the government’s rational management of
natural resources and will likely reduce corruption.
The central government will oversee regulation by
planning for royalties, taxes, incentives, permits
and
licensing
while
allowing
regional
governments and local communities input and
representation in the process. When these local
governments and communities are thus directly
involved they have a higher stake in acquiring
benefits such as local training and employment.
Ultimately Parliament will oversee any reports
submitted on these ongoing activities.
This kind of approach is based on a
strategy known as Community Based Natural
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Resource Management (i.e., Child, 2003, Sebele,
2010, Walle and Asgary, 2014). This model
encourages governments to collaborate and
cooperate with local people by sharing decisionmaking authority regarding a region’s assets. The
government or outside authority grants local
people a degree of decision making authority over
assets adjacent to their communities, and allows
them to benefit from these assets. This can lead to
a win-win situation in which all stakeholders will
benefit and become more willing to cooperate with
each other. CBRM offers a means to reduce
tensions between local people and powerful forces
like the government and thereby find a more
coordinated, sustainable, and equitable approach
to managing resources and assets.
locations, the environmental implications of
investment in this industry may differ. Extractive
projects close to urban settlements, wildlife
habitats, and watersheds tend to create more
negative impact. In addition to the political
corruption that can cripple almost every aspect of
the industry and the overall economy, health and
occupational safety is another important social
issue for extractive industries. For example,
mining-related activities can pose significant
health
hazards
although
technological
improvements are gradually reducing these effects.
The violation of human and labor rights
poses another potential problem. Other difficult
issues that must be grappled with are loss of land
and incomes without negotiation and/or adequate
compensation, forced resettlement, and the
destruction of ritually or culturally significant sites
without consultation or compensation. However,
many of these problems can be avoided by
promoting local community development through
investment in local social infrastructures such as
health and education. Countries such as
Afghanistan should give serious attention to the
environmental impact of extractive industries in
advance of exploration and expansion by
considering the negative environmental effects of
those.
The social and political impact of
extractive industries are also huge and must be
taken into account because good governance and
full transparency in the implementation process
are essential to a good outcome.
These ideas could be applied to the case of
Afghanistan if special attention is given to three
areas, especially after decades of warfare and
instability.
IMPLICATIONS OF EXTRACTIVE
INDUSTRIES
An examination of the above four countries with
abundant natural resources provides guidelines for
suitable and strategic usage of the resources to
have a sustainable development and avoid the
resource curse.
Graph 1 shows a model which is based on
United Nations Conference on Trade and
Development (UNCTAD, 2007) which shows the
economic, environmental, social and political
impact of the Afghan extractive industries. The
macroeconomic impact of investment in these
industries has direct and indirect economic
implications. While the inflow of capital,
technology, know-how, exports, and government
revenues are the most prominent and direct
economic gains, employment from the extractive
industry is likely to be limited due to its use of
capital intensive or labor saving technologies.
However, indirect economic benefits such as
market linkage and infrastructure development
provide some long-term gains that influence the
macroeconomic footprint. Depending on the type
of minerals extracted, the technology used, the
scale of the extraction activities, and the project
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Graph-1
Firstly, Afghanistan has a decentralized and weak
central government. Secondly, there is generally
a diminished level of human capital. Thirdly,
there exists a dominant culture of corruption and
poor governance. In order to address these issues,
we propose active stakeholder participation in the
process of developing its extractive industries.
The engagement of key stakeholders such
as the central as well as local governments and
communities in decision making and enforcement
is required in order to succeed in the appropriate
use of the output of extractive industries and in
minimizing corruption. In addition to the central
government as the primary stakeholder, active
engagement of local governments is also essential
for sustainable extraction as well as for security.
COMMUNITY-BASED NATURAL
RESOURCES MANAGEMENT
The application of the Community Based Natural
Resource Management model is appropriate for
Afghanistan to increase the potential success of
the extraction process. And the allocation of
significant resources for direct and indirect human
resources development is necessary to ensure
sustainable development.
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The concept of “Community Based
Natural Resource Management”, involves a wide
range of governmental strategies that provide
local people with a greater degree of selfdeterminism and active engagement in decision
making. CBNRM (i.e., Child, 2003; Sebele,
2010; Walle and Asgary, 2014) includes
governments granting concessions and thus
providing economic benefits to locals in order to
enlist their cooperation and support. It does so by
(1) including locals in the decision-making
process while (2) allowing them to benefit from
the resources of their home territory.
The leaders of national governments seek
centralized authority to effectively implement
strategies that are coherent, consistent, informed,
and intended to achieve the priorities of the state.
Policy makers and investors who collaborate with
them are often members of the elite and not linked
to those directly impacted by such extractive
resources development projects. Therefore, it is
likely that national and corporate priorities may
differ from the desires of local people who are
more directly impacted by decisions of the central
government. Over the years a common problem
recurs in many countries when central
governments make decisions which ignore the
concerns, perspectives, and interests of the local
populations.
To alleviate this inequitable situation,
CBNRM strategies have been developed to more
effectively enlist the cooperation and trust of local
leaders.
Therefore, CBNRM advocates
stakeholder engagement rather than “top down”
controls
by
governmental
bureaucracies.
Decisions once made by the government can be
replaced with greater collaboration between the
government and those who live in the vicinity of
the extractive industries - a “co-management”
Process.
While this arrangement can be a positive
step forward, Berkes and Preston (1991) warn that
in order to achieve a better outcome, participants
need to have mutual respect and trust. The aim of
CBNRM is to concurrently serve local people in
addition to a national economic development
strategy by empowering communities to work
with public sector officials for their mutual
benefit. While the government has the ultimate
authority to decide how the environment is used,
its “top down” leadership can be supplemented
with “bottom up” decision-making by those who
live nearby.
CBNRM also permits local people to reap
the benefits of their country while simultaneously
acting in ways that support and reinforce national
policies.
This decision-making mechanism
encourages the collaboration of different (and
potentially competing) stakeholders to work
together to achieve a common goal. Although
governments may be the ultimate authorities and
decision makers, they can embrace local
communities as partners thereby empowering
them. Application of this model to the case of
Afghanistan can be beneficial by providing a
more positive outcome while also reducing the
likelihood of Dutch Disease.
EXTRACTIVE INDUSTRIES AND JOBS
CREATION
Job creation in the extractive industries is
achieved through three main channels: direct,
indirect, and induced (World Bank 2012). The
direct channel is related to the activities in the
process of extraction. Based on the records of
several developing counties (Table -1), a small
number of jobs are created in the early phase of
exploration and appraisal as well as in the latter
phase when extraction begins and capital intensive
equipment is used. However, most direct and
local jobs in various activities are created at the
development and construction stages (World Bank
2012; Wise and Shtylla 2007).
Necessary
specialists such as geologists, petroleum or
mining engineers, metallurgists, quarry and
mineworkers and heavy truck or tanker drivers
provide direct employment opportunities (World
Bank report, 2012). Distributors and suppliers
within the value chain are indirect channels of job
creation. The degree to which SMEs participate in
the value chain determines the number of jobs
created. The induced channel of job creation is the
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consumer spending of income earned either
directly or indirectly from industries and its
relevant multiplier effects.
Appendix A (Table 1) shows direct
employment during and after construction for
different extractive products natural gas, copper,
gold, and diamonds in several developing
countries. For all cases, the number of direct jobs
created in the long term is fairly small ( 1,000 to
4,500)while the overall number of direct jobs
created during the construction phase is large ( up
to 9,300) but will diminish once construction is
finished and the mines and fields become
operative.
The earned income from direct, indirect
and induced employment can be spent on goods
and services (e.g. consumer goods, education, and
health services), which in turn creates business
opportunities, additional employment, earnings,
and spending multiplied throughout the economy.
The magnitude of the induced effect depends on
earnings from direct and indirect employment and
the consumption habits of the country.
Most long terms employment is created in
other industries and generated by the revenue
from extraction of natural resources. Afghanistan
policymakers should focus on investment in
education,
innovation
and
technology,
infrastructure, small-business development, and
modernization of agriculture, to ensure sustainable
economic growth. As diversification of the
economy is essential to avoid Dutch Disease, it is
reasonable to spend about 50% of the annual
revenue generated from extractive industries for
these development projects; the rest should be
invested as a reserve for unanticipated negative
shocks in the commodity market (extractive
products) and for future generations’ development
plans. As the economy begins to grow, decision
makers should consider reducing the percentage
allocated for current development projects. A
certain percentage should also be allocated to
national defense for a few years to increase
stability in the country. Countries that have
avoided the resource curse spent significantly less
(such as Norway, 4%) on current expenditures. In
Afghanistan strategy plan for development,
diversification of the economy (i.e., agricultural,
extractive industries, and tourism) is essential for
sustainable development and avoidance of Dutch
Disease. Of course, advancement of education and
development of human capital is a necessary
condition for building institutions for sustainable
development (Rodrik, 2008)
The creation of sound institutions in a
country plays a critical role in high-quality growth
and avoidance of the resource curse. Sarmidi,
Hook Law, and Jafari (2014) state that, “It is
found that economies with abundant natural
resources, and at the same time better institutional
quality and governance, such as strong democratic
accountability, high law and order, lower
corruption, or higher integration among
government institutions have better economic
growth and higher welfare,” (195). Countries
with high quality institutions like Canada and
Norway, have low levels of corruption and avoid
civil conflicts, and allocate resources more
equitably. Natural resources contribute to
economic growth only when there is a certain
level of institutional quality (Sarmidi, Hook Law,
and Jafari, 2014; Rodrik, 2008; Stiglitz, 2006).
Countries with low quality institutions are likely
to experience slower economic growth. Therefore
policymakers should strive to support and build
high quality institutions in the early stages of
development.
However, economists (i.e.,
Sarmidi, Hook Law, and Jafari, 2014; Rodrik,
2008; Stiglitz, 2006; Sachs, 2006) argue that if the
requisite institutional framework is absent or not
accommodative, no matter the resources, the
intended results will not be achieved. Low quality
institutions can lead to numerous rule changes,
corruption, weak law enforcement, volatility and
lack of efficiency.
When institutional quality is utilized for
the benefit of the economy, the beneficial impact
of resource abundance increases revenues.
Countries such as the United States, Canada,
Norway, and Australia with high quality
institutions can attract more industries to the
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production process and in turn will increase
economic growth.
CONCLUSION
The potential for the development of
Afghanistan’s from untapped resources is huge
and can be a game-changer for rapid economic
growth. The country’s current political, security,
and economic development conditions pose
substantial challenges for the development of
extractive industries. In this paper we have
examined the relevant literature and offered a
feasible roadmap for the appropriate use of natural
resources to advance development. Based on
pervious international experiences, we suggested
the engagement of key stakeholders through
CBNRM to reach a positive and sustainable
outcome.
Income earned from extractive
industries should support diversification of the
economy, enhance development, and reduce the
likelihood of triggering a downturn in other
sectors of the economy and minimize the
unintended negative consequences of Dutch
Disease.
RECOMMENDATIONS
In this study we discussed principles and offered
solutions for developing natural resources by
actively engaging stakeholders in the process and
allocating funds for projects that leads to a
sustainable
development.
However,
implementation of public policies requires
stakeholders to develop a deeper understanding of
pertinent issues in order to be able to formulate
prudent policies. Therefore, we suggest that there
be a careful examination of the following issues:
1. Reform laws and regulations in the mining
industry;
2. Trim bureaucracies to increase efficiency;
3. Make all contracts transparent and within the
guidelines of national and international best
practices, including the public announcement
of such contracts.
4. Eliminate corruption at all levels and
implement a zero-tolerance policy with
respect to violators;
5. Identify potential extractive industry jobs that
can be created for citizens in both the shortterm and long-term, in addition to evaluating
the multiplier effects of projects across
industries.
6. Support funding generated from natural
resources for development of human capital;
7. Ensure that any contract signed with foreign
firms has a provision for a high percentage of
employment and training of local citizens.
Employment in the extractive industries is a
good alternative to opium production;
8. Estimate refinery capacity, configuration, and
the cost of its development;
9. Study the feasibility of a transportation
system and a pipeline network within the
country and its neighbors;
10. Consider the financial requirements for
developing oil and gas including financial
sources from multinational agencies and
private ventures.
ACKNOWLEDGEMENT
Contributions of Dr. Bahram Grami, Massood
Samii, Bahram Mahmoudi, Rajat Sharma Subedi,
Alf Walle, and participants in the CIK-AUC
Conference 2016 are greatly appreciated.
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making it the biggest foreign investment and
private business venture in Afghanistan’s history.
The Afghan Mining Ministry estimates that the
mine holds some six million tons of copper (5.52
million metric tons) estimated to be worth tens of
billions of dollars and expected to generate jobs
and economic activity for the country. The mining
lease holders propose to build a railway to serve
the copper mine. But since 2014, MCC has been
renegotiating the copper contract with the Afghan
government to reduce its exposure to the war-torn
country in a move that threatens Kabul's plans to
use the revenue generated by its mineral
resources. With copper prices falling, the Chinese
economy slowing, and security in Afghanistan
deteriorating, the company has yet to begin
production and, according to mining industry and
other sources, no longer wants to abide by the
terms of its 2007 contract. The company wanted
to renege on building a railway, power plant and
processing factory, as stipulated in its deal to mine
at Mes Aynak, site of one of the world's biggest
copper deposits. According to a source close to
Kabul's Ministry of Mines, MCC wanted to
renege on paying the remainder of a bonus worth
US$808 million to the Kabul government, having
already paid US$133 million, and also wanted to
cut royalty payments currently set at 19.5 percent,
about double the world average. MCC was
apparently in a position to dictate terms, having
secured a 30-year lease on the mine, which
contains 5.5 million tons of high-grade copper
ore. Copper is currently trading at less than
US$6.60/kg, compared to highs in 2011 of more
than US$9.90. China is estimated to have more
than 700,000 tons of bonded copper stocks. The
huge investments already made by Indian and
Chinese companies reduce the opportunity for
others to be engaged.
APPENDIX A
China’s
state-owned
National
Petroleum
Corporation (CNPC) signed a $700 million oil
exploration contract with the Afghan government
in January, 2010. Mining Minister Wahidullah
Shahrani (Jan 10, 2012) hailed the deal as
‘historic’, saying it was ‘the first time that
Afghanistan has signed a great contract for the
country’s oil exploration’. The CNPC formed a
joint venture with Afghan partner Watan Group in
the northern provinces of Sar-e Paul and Faryab to
drill three oil blocks in the Amu Darya Basin, 640
kilometers from the border of China’s western
Xinjiang Uyughur Autonomous Region, a staging
base for Chinese companies to build pipelines
through Central Asia.
The project is expected to pay Kabul $5
billion over 10 years, with 70% of profits from oil
and gas sales going to the Afghan government. In
addition, CNPC will pay 15% royalties, 30%
corporate taxes and rent for using Afghan land.
The CNPC’s primary aim is to ensure oil supplies
to China. The three oil blocks are only 640
kilometers from Kabul has also granted rights to
an Indian government-backed steel consortium to
develop the Hajigak iron ore deposit between
Bamyan and Wardak provinces. With a reserve of
1.8 billion metric tons, it is Asia’s largest
untapped iron deposit. The consortium plans to
spend $11 billion to develop the mine, including
the construction of a steel mill, power plant and
transport links. The group also proposes to build a
900-kilometre railway line from Bamyan to
Zahedan, across the border in Iran, at a cost of
$4.3 billion, where ore will be transported to
India.
In November 2007, a 30-year old lease
was granted to the China Metallurgical Group
(MCC) for US $3 billion for copper mining,
CCJ, V. 1, No. 1 -
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May 2016
Hamidullah Farooqi
and Nader H. Asgary
CCJ, V. 1, No. 1 -
57
May 2016
IT in the Global Strategy
Satya Prakash Saraswat
Information Technology in the Global Strategy of a Multinational Bank
from an Emerging Economy
Information and Process Management
Department
Bentley University
Waltham, MA 02452
Abstract
Based on a survey and extended interviews with 78 domestic and
international managers of a leading bank in India, this paper
identifies some problems encountered with the utilization of
Information and Communications Technology (ICT) by this
enterprise in its global marketing strategy. A comparative
analysis of the survey responses reveal recognizable differences
among managers within and outside India concerning the
problems and prospects of ICT as an instrument of global
business strategy. Twenty problems that can diminish the
influence of ICT in this strategy are identified and classified into
four categories: Infrastructure, Regulation and Restrictions,
Training and Culture, and Financial Constraints. The study finds
that ICT has assisted the bank in maintaining its global
competitiveness but the international managers of the bank do
not agree that it has generated any competitive advantage. Using
a qualitative methodological approach, this paper systematically
explores the problems and prospects of ICT as an important
supporting factor in the global strategy of a multinational bank
from India.
Keywords: Global Information Technology, Information Technology Strategy,
Multinational banking
INTRODUCTION
In the contemporary business environment dominated by
multinational corporations (MNCs) and ICT, globalization has
become indispensable for corporate survival and growth. In
recent years, the debate on globalization and the role of India as
an emerging economy has focused primarily on private sector
companies such as Infosys Technologies and Tata Consultancy
Services that provide software development or Business Process
Outsourcing (BPO) services to their clients in North America
and Western Europe. The discussion of multinational companies
originating from India and trying to use ICT in their global
operations for strategic advantage has been absent from the
academic debate on global issues. Some of these companies
have effectively deployed ICT in their business processes to
become successful Indian global corporations in a short period of
two decades. Recent accomplishments of erstwhile notoriously
inefficient and unprofitable Government-of-India (GOI)
CCJ, V. 1, No. 1 -
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May 2016
corporations such Indian Railways, demonstrated known as Public Sector Undertakings (PSU), have
and semi-autonomous organizations
Demonstrated that PSUs can be made efficient
implementation of an Enterprise System (ES)
with information technology without utilizing the
system known as “Finacle” Core Banking
risky management practices of industrialized
Solution from Infosys Technologies of Bangalore,
economies. ICT that addresses India’s unique
India.
This system has Service Oriented
requirements is making it possible for the PSUs to
Architecture (SOA) and web-enabled technology
compete effectively in the global markets while
for 24x7 banking operations in multi-country and
being sensitive to the public policy requirements
multi-currency environments. The key modules of
of the country.
the system consist of Customer Relationship
Management (CRM), Consumer Banking, Wealth
This study examines the role of ICT in the
Management, Corporate Banking, Trade Finance,
global strategy of a large PSU bank in India,
and Functional Services. This system provides
identified in the paper as the Indian Public Sector
specialized services that include Non-resident
Bank (IPSB). This bank controls a network of
External (NRE) accounts, Non-resident Ordinary
more than 2,000 branches, 1,000 ATMs, 12,000
(NRO) accounts, fixed deposit certificates, foreign
employees, and 15 million customers in more than
currency deposits, money transfers, wire transfers,
15 countries around the world. Yet, compared to
foreign currency drafts, and Indian currency
the large global multinational banks from the
drafts. These services are the mainstay of the
USA and Europe, the multinational operations of
bank because most of its customers in the
this bank are very small and just emerging. Due
countries outside India are non-resident Indians
to the competitive pressures created by the
(NRI) who require them. Representatives of GOI
liberalization of India’s economy in the 1990’s,
and senior bank executives assessed the banking
IPSB recognized the need to differentiate itself in
industry ICT environment in India and found that
the marketplace as an international bank and the
global corporations such as IBM, Accenture, and
importance of ICT in implementing this strategy.
the Gartner Group were better prepared to meet
The challenges of executing this strategy in a bank
the technology requirements of the bank. This
founded on traditional business values and
was due to the superior experience of these
culturally unprepared to face the realities of the
companies with ICT in large banks around the
global markets are studied in this investigation.
world and their utilization of global best practices
The relatively small size of its global operations
in their Indian projects. The expectation was that
compared to its revenues in India, its strict control
the bank’s employees, working with outside
by GOI, and the experimental nature of its ICT
consultants, would improve IPSB’s processes and
deployment as a strategic asset make the academic
introduce innovative practices in due course. The
investigation of this organization unique and
knowledge obtained in the process would be
interesting.
diffused across the organization making it more
competitive in India and abroad.
Senior
executives were expected to play a crucial role in
ICT AND THE GLOBAL BUSINESS
motivating employees to make greater use of
STRATEGY OF THE IPSB
IPSB started deploying ICT in 2001 to streamline
information technology.
Executives were
its operations in India and expand its presence in
provided laptop computers and internet
the growing international markets. Despite fierce
connectivity at their homes and offices with other
opposition from its employee unions, the bank
required IT resources. Since the management
hired a large international IT consulting firm
salaries at PSU banks are lower than the private
operating in India to formulate its ICT strategy.
sector, non-pecuniary methods such as positive
The consulting firm recommended the
CCJ, V. 1, No. 1 -
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May 2016
feedback and personal recognition were used as
the tools of motivation.
2006; Villas, 2007). However, others have
completely denied that ICT creates any
competitive advantage in organizations at all
(Carr, 2003). Most studies of global issues in
information technology have investigated the
outsourcing of software development and business
processes to countries such as India from Western
Europe and the United States (Aggarwal, 2008).
A review of 140 articles published since
2001 in MIS Quarterly, Information Systems
Research, the Journal of MIS, Information &
Management, the Journal of Global Information
Management, and the Journal of Global
Information Technology Management reveals the
following taxonomical structure of global IT
research.
From the point of view of the
geographical scope, published studies can be
classified as (a) Single country issues, (b) Cross
country issues, (c) Multi-country issues, (d)
Cross-cultural issues, and (e) Multi-cultural
issues. From the point of view of the conceptual
scope or the topics, studies can be classified as (a)
Software and business process offshoreoutsourcing, (b) ICT adoption and diffusion, (c)
ICT management and global virtual teams, (d)
Global IT industry, (e) ICT inter-organizational
issues, and (f) ICT in government sector and other
topics.
As some examples of geographical scope,
a study of 134 Chinese companies in the category
of single country investigations showed that
restricted access to computers, lack of trust in the
Internet, lack of enterprise information sharing,
and inability to deal with rapid change as
characteristics of the Chinese culture are the most
important barriers to the adoption of e-commerce
in China (Tan, 2007). In cross country studies, a
survey of 110 managers of Japan-China offshoring projects indicates that trust has an
important influence on project quality and that
information sharing and communication quality
create trust. In another cross-country study
between India and the US, a laboratory
experiment proved that collaborative conflict
management has a positive influence on the
performance of synchronous global virtual teams
A REVIEW OF THE GLOBAL ICT
STRATEGY LITERATURE
Topics frequently addressed in academic
publications in international business are cross
cultural studies (Adler, 1989), structural issues of
multinational corporations (Ghoshal, 1993; Gupta,
1991), managerial differences (Broadbeck, 2000;
Keil, 2000), determinants of direct foreign
investment (Chan, 2006), quality of corporate
governance in host countries (Husted, 1999;
Kimbro, 2002), and corporate social responsibility
(Dennis, 2003; Kostova, 2003; Mani, 1998). Some
of these well-known journals are the
Administrative Science Quarterly, the Academy
of Management Review, the Journal of
International Business Studies and the Columbia
Journal of World Business (Chan, 2006, Gupta
1991). Journals exclusively focusing on the
investigation of global issues in information
technology such as the Journal of Global
Information Technology Management, the Journal
of Global Information Management, the Journal
of Cases on Information Technology, and the
Journal of Information Technology Cases and
Applications have also published numerous
studies addressing global issues in information
and communications technology. The broad
issues addressed in these journals include business
process outsourcing, organizational effectiveness
in the software industry, competitive performance
of companies, impact of ICT on organizations,
foreign direct investment in ICT, the digital
divide, and building partnerships with local ICT
businesses in developing countries (Khanna,
2004; Sledge, 2007).
Another frequently addressed topic in
recent years has been the implications of
investment in ICT for the profitability of business
organizations. It has been argued that investments
in information technology and e-business systems
contribute significantly to profitability and
competitive advantage in organizations across
industries (Algalith, 2007; Dewan, 1998; Pavlou,
CCJ, V. 1, No. 1 -
60
May 2016
and group heterogeneity has no impact on
collaboration style. Cross-country comparison of
data from France and Germany shows that the
decision to engage in full or quasi-outsourcing is
based on internal factors such as organizational
size, IT organization and IT assets, and external
factors such as the institutional environment in
which the organization functions (Barthelemy,
2005). In multi-country studies, an analysis of
data from 339 companies in Europe showed
positive correlation between the organization’s
competencies and its e-business success
(Eikebrokk, 2007). In cross cultural studies, a
survey of 722 knowledge workers found that
usage behavior, intention to use computers, and
organizational acceptance of IT are different in
Saudi Arabia and the US. Studies of global
outsourcing in India and other countries have
found that national culture is an important
variable that defines the success of outsourcing
projects in remote countries (Carmal, 2005). A
qualitative case study of a global financial firm
that outsources to its wholly owned subsidiaries
(“captive centers”) in multiple global locations
such as Russia and India found that cultural and
status differences played a significant role in
offshore outsourcing of work (Levina, 2008).
In terms of the conceptual scope, software
and business process outsourcing has been the
most frequently addressed topic in the academic
literature since 2002. The published works range
from journalistic books such as Tom Friedman’s
(2005) book The World is Flat to scholarly
publications such as the special June 2008 issue of
MIS Quarterly addressing the global issues of
information technology. A unique article on
“two-stage outsourcing, ” where companies from
the United States outsource to Ireland and the
Irish companies then outsource to India, proves
that off-shoring tends to progress through a
sequence of stages towards a multistage paradigm
of global outsourcing (Olsson, 2008). Global IT
studies of ICT dissemination have concentrated on
the diffusion of the Internet in various countries.
A study of Kuwaiti ministries indicates that the
technology acceptance model is not universally
applicable
in
government
organizations
(Almutairi, 2007) and another study finds that
national culture is the central issue in the success
of ICT diffusion (Gefen, 2006).
Although implementation of ICT in
municipalities, ministries, and governmentcontrolled corporations has been addressed in
recent publications, the role of ICT for global
competitive advantage in government controlled
corporations from emerging economies is not
adequately addressed in the literature (Ke, 2006;
Sanford, 2007). One possible reason is that
corporations from developing countries opening
branches and subsidiaries in international markets
is a relatively recent phenomenon. Identifying the
problems and prospects of ICT in these
organizations is an issue that will become
important with the rapid growth of smaller MNCs,
known as micro-multinationals, in the world
economy (Matthews and Zander, 2007; Varian,
2011). This paper represents an exploratory effort
in filling this visible gap in the academic literature
on global information technology.
METHODOLOGY
Extended discussions were held with 7 senior
executives, 9 managers with previous experience
in multinational operations of the bank, 12 branch
managers in India, and 13 ICT-employees at the
headquarters of the bank to identify the
predominant concerns of the organization
regarding the utilization of ICT in its global
operations. With 37 surveys from international
branches and 41 from Indian sources, 78
completed questionnaires were analyzed in the
study. Table 1 lists the branches surveyed in
various countries.
From this joint exploration, twenty areas
of concern were identified. These are listed in
Table 2 and classified into four categories (a) ICT
Technical Infrastructure, (b) Regulatory and
Ethical Environment, (c) ICT human resources
infrastructure, and (d) ICT financial constraints.
After the joint exploration, a five point Likertscale questionnaire containing 20 items was
CCJ, V. 1, No. 1 -
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May 2016
administered to managers of all international
branches of the bank outside India and the
managers in India who participated in the joint
exploration through a directive from the bank
headquarters in India. In this questionnaire,
managers were asked to indicate how satisfied
they were with the problems occurring and being
solved in each category. The score of 5 is the
highest level of satisfaction and 1, the lowest.
Two questions at the end asked managers to
indicate whether ICT is generating competitive
advantage or just fulfilling a competitive
necessity. An open-ended question solicited
information about some of the solutions used by
managers.
infrastructure problems are more acute in some
regions of the world. The ICT infrastructure
available to managers outside of Europe and
South East Asia requires upgrading to meet the
needs of the bank’s multinational operations.
Averages on individual problems are not being
explained due to the limitations of space in this
paper.
Indian government sector banks have
been lagging behind private sector banks in the
effective deployment of ICT in general.
Electronic mail, Microsoft Office applications,
SWIFT for inter-bank communication, and AS400
for accounting applications are commonly
identified IT applications at IPSB’s international
branches.
These systems, however, are
considered no match for what is available to the
bank’s competitors. Managers in all regions
indicated that ICT available to them is
considerably less sophisticated, which often
prevents the dissemination of timely information
on market research and other crucial issues to
global branch managers.
Although the old
systems at the bank are now being replaced with
more effective ES, many branches are facing
“teething” problems with ICT deployment at this
stage. Frequently occurring problems in India and
East Africa are computer equipment malfunction,
inadequate support from service providers, and
breakdown of leased telecommunications
channels. These problems seem to be aggravated
during the extended monsoon seasons. In East
Africa, severe problems were encountered in
migrating to the new system and even simple
telephones were down at the branch for two weeks
in 2004 during the tenure of at least one manager.
DATA ANALYSIS AND INTERPRETATION
Table 2 contains the four categories of issues
investigated in this project. These categories are:
(a) ICT Infrastructure, (b) Regulation and
Restrictions, (c) ICT Human Resources, and, (d)
ICT Financial Constraints. The regional averages
for the level of satisfaction with various problems
are summarized in the table followed by an
interpretation of the findings and their
implications. The overall mean score of greater
than 3.0 in the last column of the table indicates
level of moderate level of satisfaction with ICT.
This would imply that no serious problems were
being encountered in this area. However, a closer
look at the averages for individual problems
indicates discernible differences between the
perspectives from various regions and India.
Table 2 summarizes the averages for each region
and provides a framework for comparison.
Regulation and Restrictions
The five problems contained in this category are:
(a) Excessive GOI regulation, (b) Excessive host
country regulation, (c) Lack of top management
ICT support, (d) Employee resistance to ICT use,
and (e) Customer resistance to ICT use. Mangers
often indicated that aside from the older and more
senior employees resisting the use of ICT,
established Indian diaspora customers consider
ICT Infrastructure
The five problems identified in this category are
related to computer equipment, software
malfunction, user (employee) errors, and general
system design. Higher overall scores of 3.68 and
3.33 from Europe and South East Asia as
compared the lower averages of 2.25 and 2.83 for
East Africa and India clearly indicate that
CCJ, V. 1, No. 1 -
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May 2016
technology a hindrance in cultivating personal
relationships with the bank and resist its use. The
lower overall scores of 3.00, 3.04 and 2.91 from
Africa, 2.91, 3.0 and 3.1 respectively for India,
East Africa, and the Middle East indicate that the
organizational culture in these regions appears to
have a lower degree of preparation for the success
of ICT in the global strategy of IPSB. This is in
stark contrast to the fact that so many ICT
outsourcing companies from India have
demonstrated world-class organizational cultures
to adopt these technologies.
The problems examined in this category are (a)
Inadequate funding of ICT at branches by IPSB
headquarters, (b) GOI restrictions on ICT funding,
(c) High cost of customer ICT related complaints,
(d) High cost of equipment and Services, and (e)
High Cost of Managing ICT.
This is the only category for which the
averages of scores of 3.04 and 2.95 are lower for
Europe and South East Asia as compared to East
Africa, Middle East, and India. ICT services in
general are more expensive in Europe and South
East Asia due to a chronic shortage of trained IT
personnel in these regions, and the budgets
allocated to the branches of the bank are often
considered insufficient by international managers.
This is because the budget allocations are often
decided at the headquarters of the bank in India
and the special requirements of the more highly
competitive regions such as Europe are not
addressed properly in the allocation process. With
the declining growth of India’s economy and the
profitability of banks, these problems are likely to
be more severe in the future.
The averages reported in the last two rows
of Table 2 lead to an interesting but notunexpected
conclusion
about
ICT
for
organizational competitiveness. Most managers
agree that ICT is important for maintaining global
competitiveness as indicated by the averages for
every region being above 3.0. The average of
3.65 on the second question indicates that
managers and executives in India generally agree
that ICT plays an important role in generating
competitive advantage for the bank.
The
managers of international branches and
subsidiaries, however, appear to be less
enthusiastic about this premise as indicated by a
lower average of 2.15 to 2.83 in the other regions
of the world where the bank operates.
The problems uncovered in this study are
not unique to India but the solutions employed at
the branches can be considered quintessentially
Indian.
Table 3, summarizes some typical
solutions employed by global branch managers.
ICT Human Resources
It is widely acknowledged in organizations that
without properly prepared human resources,
sophisticated technologies and systems cannot
succeed. The five problems of human resources
preparedness for ICT utilization are (a) Inadequate
employee training, (b) Inadequate ICT staff
training, (c) Inadequately trained managers, (d)
Inadequate number of ICT personnel, and (e)
Lack of ICT Culture. A simple example of
questionable ICT related cultural behavior at IPSB
is that branch managers in East Africa, the Middle
East and India often failed to respond to customer
emails in a timely manner although the volume of
such emails was very low compared to private
sector banks from India.
The overall scores of 3.12 and 3.17 from
East Africa and India compared to 3.47, 3.55, and
3.81 from the other regions of the world
distinguish then on the severity of these problems.
This observation appears to confirm the pattern
emerging from the previous categories. The
human resources at IPSB appear to be less
adequately prepared for effective utilization of
ICT in India and East Africa as compared to
Europe and the Middle East. Part of the reason is
that the bank posts its best educated and highly
trained managers to its branches in Europe and
South East Asia. Also the governments in these
regions have more stringent and strictly enforced
laws against violations of their codes.
ICT Financial Constraints
CONCLUSION
CCJ, V. 1, No. 1 -
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May 2016
Four possibilities relevant to global ICT became
evident from this exploratory investigation. First,
in the future many private and PSU companies
from India are likely to expand in international
markets either through conscious organizational
redesign for growth or due to the compulsions of
the global marketing circumstances. Second,
overseas managers of PSU companies such as
IPSB will rely increasingly on ICT to compete
successfully in spite of the disdain some senior
executives or employee-union bosses have for this
technology.
Third, ICT by itself will be
insufficient to generate sustainable competitive
advantage in these organizations, and fourth, the
global managers of government sector enterprises
from India will have to develop adequate
infrastructural, regulatory, cultural, human
resources, and financial capabilities to find
optimal solutions to growing ICT problems. An
excessive reliance on antiquated ICT, inadequate
financial resources and constrained decision
making flexibility in a global economic
environment will be a serious hindrance in the
global expansion strategy of these organizations.
Government sector companies from countries like
India can counter these disadvantages more
effectively by improving their organizational
structures and developing methods of motivation
that go beyond higher salaries and selfactualization possibilities prevalent in many
advanced industrialized countries.
This will
require a systemic understanding of the
underlying managerial, technological, and sociocultural factors that motivate managers from
traditional cultures to achieve their objectives with
limited resources.
Assimilation of best
information technology and systems practices
with innovative techniques of management and
motivation can provide a solution to the pervasive
problems of global ICT.
This exploratory investigation suggests
that deploying sophisticated information and
communications technology in the organization is
not sufficient by itself to generate competitive
advantage.
Expatriate managers from India
appear to be recognizing that limitations of ICT
can also be overcome by effective use of
intellectual capital and greater emphasis on
organizational
learning.
Technology
improvisation is recognized as a classic Indian
solution to all kinds of problems. It is frequently
utilized at the international branches of the bank
to solve the socio-technical problems of ICT. But
this solution may not be optimal when ICT
equipment prices are rapidly declining and
customers are demanding speedy responses to
their problems worldwide.
The limited scope of this study has
generated observations that are relevant only to
the highly regulated government sector banks in
India. However, the methodology employed in
the investigation is sufficiently sound for
undertaking larger studies encompassing multiple
government sector and private sector banks within
a country or across countries. Private sector
banks such as Hong Kong and Shanghai Banking
Corporation (HSBC) and Industrial Credit and
Investment Corporation of India (ICICI) Bank
have the reputation of being some of most
successful global banks in India. These banks
utilize ICT in their trans-national operations with
remarkable efficiency and effectiveness. Studies
can be conducted to compare the ICT strategies of
global private banks with the government-sector
banks to enhance the competitiveness of
government sector banks. A glaring need for a
comprehensive investigation of these issues with
innovative methodologies is established by this
exploratory study.
CCJ, V. 1, No. 1 -
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May 2016
Table 1: International branches surveyed in various countries and regions
Region
Examples of Countries
Represented
Branches
Responding
Africa
Europe
East Asia
Middle East
Other
INDIA
TOTAL
Kenya, South Africa, Tanzania, and Uganda
Belgium and United Kingdom
China, Hong Kong, Malaysia, and Singapore
Oman and United Arab Emirates
Mauritius, Bahamas, etc.
Mumbai and Delhi regions
11
13
5
6
2
41
78
TABLE 2: Regional Levels of Satisfaction with ICT Problems
(1= Lowest and 5 = highest level of concern)
PROBLEM CATEGORY
REGION
Africa Europ Middle Southe
East
East Asia
(a) ICT Infrastructure
India
Ove
rall
Computer equipment malfunction
Telecommunications network down
Software malfunction
User (employee) errors
Improper design of strategic systems
A- Overall
2.23
1.85
1.99
2.13
3.07
2.25
3.91
3.46
3.84
3.75
3.46
3.68
2.84
3.62
2.97
2.96
3.18
3.11
3.83
3.83
2.58
3.06
3.34
3.33
2.96
2.41
2.87
2.85
3.05
2.83
3.15
3.03
2.85
2.95
3.22
3.04
(b) Regulation/Restrictions
Excessive GOI regulation
Excessive host country regulation
Lack of top management support
Employee resistance to ICT use
Customer resistance to ICT Use
B-Overall
2.81
3.88
2.73
2.78
2.82
3.00
2.74
3.25
2.94
4.15
4.24
3.46
2.73
3.07
2.82
3.67
2.93
3.04
2.81
3.16
2.75
4.12
3.91
3.35
2.67
3.14
2.67
3.13
2.95
2.91
2.75
3.30
2.78
3.57
3.37
3.15
(c) ICT Training/Culture
Inadequate employee training
Inadequate ICT staff training
Inadequate training of mangers
Inadequate number of ICT personnel
Lack of ICT Culture at the branch
2.33
2.92
3.14
3.85
3.38
3.71
2.85
3.36
3.93
3.48
2.92
3.63
3.21
3.96
4.05
3.54
3.75
3.52
4.07
4.19
2.86
3.62
3.64
2.97
2.75
3.07
3.35
3.37
3.76
3.57
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C-Overall
3.12
3.47
3.55
3.81
3.17
3.43
(d) Financial Constraints
Inadequate funding of ICT by IPSB
GOI restrictions on ICT funding
High cost of customer complaints
High cost of equipment and services
High cost of Managing ICT
D-Overall
2.63
2.85
3.91
4.01
4.11
3.50
2.83
2.90
3.62
2.76
3.10
3.04
2.52
2.49
4.11
3.98
4.13
3.45
2.45
2.61
4.26
2.45
2.99
2.95
2.61
2.53
3.93
4.02
4.18
3.45
2.61
2.68
3.97
3.44
3.70
3.28
3.38
3.55
3.63
3.11
3.43
2.33
2.15
2.16
2.83
3.65
Is ICT maintaining global
competitiveness?
Is ICT generating competitive
advantage?
N/A
N/A
Table 3: Solutions applied to global ICT problems
Problem
Category
1. ICT
Infrastructure
Problems reported
How the solution is applied
Antiquated equipment
Special relationships developed with local
businesses and individuals providing technical
services and assistance
Unreliable software
Untrained users
Highly trained specialists from India are deputed
at multinational branches for short duration
Less expensive locally available technology is
purchased
2. Regulation
and restrictions
Host country regulation
Local banking regulations are strictly observed by
managers
Excessive GOI regulation
Inconvenient Indian banking regulations are
observed with flexibility and discretion
3. ICT Training
and culture
Lack of ICT culture among
employees
Senior managers exhorting employees to use ICT
more effectively
Lack of discipline
Citizens of host countries employed to enrich
cultural environment and change work ethics
Slow organizational learning
4. ICT Financial
constraints
Inadequate funds for ICT
Inability to borrow locally
More funds being allocated from the headquarters
and more flexibility given to expatriate managers
to spend locally generated revenues on ICT
CCJ, V. 1, No. 1 -
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May 2016
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CCJ, V. 1, No. 1 -
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May 2016
Iran and the West
Saeb Al. Ganideh
Reintegrating Iran with the West: Challenges and Opportunities
Authors
Mohammad N. Elahee,
Farid Sadrieh and Mike Wilman
Editors, (Emerald, June 2015)
apparent within each essay, as each contributor,
even the most skeptical, like Farid Mirbagheri,
takes great care to examine different possibilities
and the likelihood of potential outcomes. Taken
together, the essays also provide an overall
balance as various perspectives about the future of
Iran are juxtaposed and brought together in a
single document.
Although the depth and quality of the
contributions are necessarily unequal, most
provide a great wealth of information and an
impressive level of detail without becoming
verbose. Monshipouri’s analysis of the potential
for Iranian natural gas exports illustrates how an
exhaustive analysis can also remain parsimonious
and accessible to non-specialist readers. Another
contributor, Massood Samii goes beyond the oil
and gas sector to consider all other export goods
that could lead to a more diversified and less-oil
dependent economy. Since the Iranian revolution
of 1979, and especially over the last few years,
Iran’s trade relations have shifted away from
Western partners toward East Asian as well as
neighboring countries. Will the West be able to
reclaim its former position after the lifting of
sanctions? While in some sectors, like oil
production, Iran needs the technical expertise and
investment that only the West can provide, in
other sectors the new patterns may endure and
European firms may lose market share as a result
of policies implemented by their respective
government. For example, in the auto industry, as
Mike Wilman and Bob Bax demonstrate, Iran has
fallen far behind in terms of manufacturing
technology. Even before the European auto
companies left Iran in 2012 following a tightening
of the sanctions regime, Iran’s car manufacturing
consisted primarily of assembling older models
European automobiles. With a large domestic
market and pent-up demand for more
technologically advanced cars, Iran’s auto
industry is in dire need of foreign expertise and
Reviewed by
Saeb Al. Ganideh
Associate Professor and Chair, Dept. of Marketing
Al-Zaytoonah University of Jordan
Amman - 11733, Jordan
Published on the eve of the historical nuclear
agreement signed in July between Iran and six
major world powers, this book provides timely
and much needed insights into what may lay
ahead as Iran seeks to recover and rebuild after
years of increasingly punishing economic
sanctions. This somehow eclectic collection of
essays, written by a number of academics from
across the world, reflects the areas of expertise of
its contributors- political scientists, marketing,
management and international business scholars.
Many have also extensive experience in industry,
diplomacy and international trade.
Early indications make clear that despite
what some expected or hoped, and other feared,
there will not be a gold rush to Tehran. The lifting
of sanctions, to be implemented in the coming
months under the Joint Comprehensive Plan of
Action (JCPA), will be a major achievement for
the latter group, likely to influence Iran’s internal
political
dynamics,
most
immediately
parliamentary elections scheduled for February
2016. What Reintegrating Iran with the West does
best is reflecting the political and economic
complexities that characterize Iran whilst
recognizing its immense potential. Perhaps the
subtitle “Challenges and Opportunities”, although
overused and formulaic words in other contexts, is
truly indicative of the balance and nuance
reflected in this book. This approach is clearly
CCJ, V. 1, No. 1 -
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May 2016
Iran and the West
Saeb Al. Ganideh
investment. However, as Dino Bozonelos’
macroeconomic analysis demonstrates, Iran’s
“patrimonial political economy”, also known as
crony capitalism, may dissuade many foreign
investors. The need for reform to increase
transparency and efficiency in the economy is
abundantly clear. The author argues that Iran’s has
the potential for such reform. In the event of such
evolution, the large, highly educated and
prosperous Iranian Diaspora is well poised to
assume a critical role in transferring knowledge
and money to their country of origin. As noted
earlier, however, such reform represents a direct
threat to the interests and power of what the
author calls the “patrimonial elements” such as
the Basij militia and other interest groups, and
thus remains hostage to political infighting.
Having addressed some of the economic
challenges and opportunities within specific
industries as well as across industries, the reader
is introduced to the intricacies of diplomacy and
negotiations in an insightful analysis by an expert
in the field, Eugene Kogan. It may be thought that
with the agreement signed, such understanding of
the bargaining process is no longer of great
interest, but such is far from being the case.
Indeed, a process has been triggered by the July
2015 agreement, that will most likely face
challenges as the implementation phase is
potentially ripe with many turbulent episodes as
the parties, Iran and the P5+1, and especially the
West, pursue their strategic goals. Already, the
recent testing of Iranian missiles that could carry
nuclear warheads has raised the tensions a notch,
as the parties evaluate how and when to push for
advantage and how and when to back down. In a
separate chapter, Farid Mirbagheri reviews the
economic and geopolitical implications of the
nuclear negotiations with Iran for the United
States, the European Union, Israel, Russia and
China.
Iran’s bilateral relations with two of the
aforementioned powers- the United States and
China, as well as Indo-Iranian trade relations are
the focus of the last three chapters of this book.
David Cadden offers the reader a vivid, multi-
faceted review and analysis of the complex and
often contentious US-Iranian relationship,
skillfully integrating such diverse and pertinent
elements as economic interests, historical events,
cultural factors and political and geostrategic
considerations. He concludes by emphasizing and
demonstrating that a successful nuclear
negotiation is clearly in the interests of both
countries. Rakesh Mohan Joshi’s chapter on IndoIranian relationship, while insightful, is more
narrowly focused on trade, using trade statistics to
illustrate the evolution of exports and imports
over the last decade. Mohammad Elahee and
Jiayong Gao adopt a more comprehensive
approach in analyzing the Iran-China relationship,
looking beyond the economic to encompass
geostrategic, cultural and historic considerations.
In the first paragraph of this review,
Reintegrating Iran with the West was described as
a somewhat eclectic collection of essays. Having
been introduced to the contents of the book, the
reader of these lines should now have a better
appreciation of the heterogeneous nature of this
collection. Farid Sadrieh’s broad brush overview
of Iranian contributions to the world, in an
introductory chapter, does nothing to lessen the
wide scope or the lack of a strong unifying theme
in this book. Although the wide range and
diversity of themes and perspectives leave many
gaps, they also help trace the contours of an
ambitious project and represent a bold invitation
for others to fill in this fascinating picture with
their own contributions. In particular, insights
from scholars and business analysts and managers
living and working inside Iran, would have
represented a welcome addition to this collection.
This is not, however, a criticism directed at the
editors, who readily acknowledge this weakness
in their concluding chapter, but rather a lament
about sanctions that did- and still do for a short
while longer, limit cooperation and trade between
Iran and the US in many areas, including
academic research. Moreover, as the editors point
out, a host of other issues, like analyses of many
other sectors of the Iranian economy and their
post-sanctions prospects need to be addressed to
CCJ, V. 1, No. 1 -
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Iran and the West
Saeb Al. Ganideh
fill the picture that is emerging from this book.
Iran’s relationship with its neighbors and regional
powers is another area that is not addressed in this
book and merits to be explored.
In sum, this collection of essays
represents a laudable and for the most part
successful attempt to increase the level of
scholarly knowledge about an important but
poorly understood country. While it is far from
being exhaustive, it does shed light on some
critical aspects of Iran’s resurgence.
As such, it is recommended not only for scholars,
but also for graduate students, political and
business leaders and managers and anyone with
an interest in the evolving role for Iran in trade,
business and other policy arenas in its region and
beyond.
CCJ, V. 1, No. 1 -
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May 2016
Globalization and Inequality
Jasmine Morin
The Globalization of Inequality
the poor and the rich. Although there has been a
drop in global inequality, there has been a rise in
national inequality. Excessive inequality has
negative effects on economic efficiency and
individual welfare, which will be further
discussed in detail in this review.
Author
Francois Bourguignon
The Globalization of Inequality
Reviewed by
Jasmine Morin
Bentley University, Waltham MA 02452
The inequality of opportunities within countries
was one of his most prominent ideas, explaining
that there are certain opportunities that are letting
individuals in developing countries fall behind.
The monetary opportunities that developed
countries have an advantage over than developing
countries include differences in wage, income,
standard of living, and wealth. There is a high
wealth inequality, the examples he uses including
France and the United States. In France, the
richest 10% account for 60% of all of the total
wealth. In the United States, the richest 10%
receive 40% of the total primary household
income but possess 71% of the total wealth (58).
Then there are access to non-monetary
opportunities that differ between countries; these
which include access to education, credit,
housing, and employment. Many women in
developing countries do not get the chance at a
fair education, thus causing negative outcomes
including increased child bearing. Education is a
huge component to this unequal opportunity, due
to the fact that a talented student may not have the
same higher education as its wealthier
counterpart. There are also market imperfections
where he gives an example of a non-wealthy
entrepreneur who has a brilliant idea but is unable
to get a loan due to his lack of wealth thus
resulting in innovation lacking.
Bourguignon highlights certain trends and
reforms that have been occurring during the
efforts of globalization. There has been a recent
trend of advances in information and
communication in technology that has led to a
This book examines the trends that causes
inequality within and among nations and describes
the policies that should be implemented to help
this inequality from heavily occurring. This book
is broken down into five chapters; these including
Global Inequality, Countries becoming More
Unequal? Forces behind Inequality, Prospects and
Principles, and Policies for a Fairer Globalization.
Defining global inequality as “the level of
inequality between all inhabitants of the world”
(9), he separates global inequality into two areas;
inequality between and within nations,
considering the latter being the worst of the two.
This analytical review will first describe the major
topics discussed and then my review on his book.
Bourguignon believes that globalization has
positive aspects for both emerging and developed
countries. Emerging countries get to open up their
markets, which could potentially mean rapid
growth. Developed countries have positive and
negative outcomes; the negative being that certain
sectors of the economy suffers due to increased
competition but the goods and services that are
capital, skill, or technology intensive have
benefited. When discussing these issues, he does
state that international income inequality is
declining due to the economic rise of certain
developing countries, such as Eastern Europe,
Asia, South America, and Saharan Africa; but
overall there is still a large gap that exists between
CCJ, V. 1, No. 1 -
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May 2016
Jasmine Morin
growing number of office tasks that only require a
certain level of skill. This then has made many
companies outsource these jobs to emerging
economies. There has also been another recent
trend that involves executive remuneration. In
2005, when comparing average earnings, the CEO
made more than 100 times than what the average
employee made (89). There have also been major
attempts at reforms in developed countries
including taxation and privatization/deregulation.
He states that income tax cuts are the most
important of these. Bourguignon points out that
this types of reform in developed countries can be
critical, but also changes the distribution of wealth
in society. Programs need to offer long term
support unemployment due to the growing age
population and unemployment.
Another issue pointed out in the book is
the large difference between inequality within
countries and inequality between nations;
Inequality within nations being the real issue at
hand, although hard to predict. Inequality policies
and institutional reforms could easily cancel each
other out and the countries are so unique which
could result in different outcomes. Within nations
there are poverty traps, where there are
individuals who fall below a certain point and are
unable to get out of poverty. This being said, he
highlights two forces that could affect inequality
in the future. One of these forces has to deal with
the potential in growth of emerging countries as
well as advocating for globalization.
Bourguignon then discusses the many
corrections that can be made to fix inequality. To
first tackle poverty, he suggests the use of policies
toward a global convergence for the reduction of
poverty and standards of living. As of right now,
many of the rich countries allocate .35% of their
Gross National Incomes to developmental aid;
however, the Pearson Commission tried to up this
number to .7% but mainly only the Scandinavian
countries followed through (148). This aid helps
get many countries out of the poverty gap;
however, he does warn that this approach has to
have a successful government behind it. If the
government is corrupt and the money goes to the
leaders, it will not help with the inequality issue.
The money would instead just be redirected back
to the leaders, which would just be funding more
of the corruption. There also needs to be a
redistribution of wealth by the means of
educational policies and taxation. Bourguignon
states that there needs to be a standardized level of
quality of education that has to benefit a large
number of individuals. There must also be a
sustainable amount of growth so that individuals
are able to get jobs after. He stressed the idea that
developed countries need to have a gradual
reduction on taxation of inheritance, either by the
means of taxing at the moment of inheritance or
once a year.
In conclusion, he recommends some
general main issues that we need to start with to
help decrease this inequality. He emphasizes that
this issue needs to come to light and that the
negative consequences of excessive inequality
needs to be stressed to the world. Bourguignon
highlights that policies need to be implemented to
keep inequality from rising even higher; these
including the redistribution of taxation and
educational reforms. Discrimination is a topic of
concern for him, stating that the need for women
to have the same opportunities as their male
counterparts in developing countries is crucial.
This will let women be able to work outside of the
home, get an education, and have a say in their
life more than they have now. He concludes with
stating that as of right now, we need to focus on
poor countries because they need the most
attention at this point in time, with aid having to
be maintained and reformed. For all of these
reforms to work, Bourguignon stresses the need
for countries to make capital movements
transparent.
After analyzing The Globalization of
Inequality, Bourguignon does statistically backup
all of his information and recommendations with
facts concerning what has been happening in
countries, thus making him a reliable source. Not
only is he able to effectively back up his
information, he is a credible and important
individual in the world of economics and policy
CCJ, V. 1, No. 1 -
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May 2016
Jasmine Morin
making. He is currently a professor at the College
de France in Paris and is also a former director at
the prestigious Paris School of Economics.
Bourguignon served as the Chief Economist and
Senior Vice President of the World Bank from
2003 to 2007 and was made a Chevalier of the
National Order of the Legion of Honor in 2010.
He has also written other publications and
contributed with other professionals on books;
these including Handbook of Income Distribution,
The Microeconomics of Income Distribution
Dynamics: In East Asia and Latin America, and
The Impact of Macroeconomic Policies on
Poverty and Income Distribution (NYU). Due to
his high prestige in the economical industry, this
book is considered to be from a very reliable and
credible source.
Although I found the book highly
informative, I thought that he may have talked
about too many different parts on how
globalization impacts inequality. In just the first
chapter alone he describes what methods he used
to come up with his numbers, globalization in the
2000s, the history of globalization, the difference
between inequalities within countries vs.
inequalities between nations, and how the
financial crisis may have affected this
globalization. For every chapter, he has roughly
seven different sub categories, which made it
difficult at times to keep up with what he was
talking about and how they all connected. He did
use many great statistics to back up his arguments
and used many examples of countries that fit each
statement he was making about globalization. It
was laid out in a fashion that was not super
technical, which was nice for an individual like
me who does not know much about inequality and
politics. His writing style was easy to follow but
just overall contained so much information in
each section that it was difficult to stay connected
at times.
Overall, I would suggest this book to
anyone who wanted to know an overview of
inequality in the world and how globalization can
help fix some of these problems. The
Globalization of Inequality was published in April
of 2015, which makes this an extremely recent
book. Bourguignon was able to stick by his main
points that this is something that needs to be on
the top of our priority list, and his arguments were
compelling and realistic. He did not have ideas
that seemed over the top or ridiculous, which in
turn made him more credible.
CCJ, V. 1, No. 1 -
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May 2016
Business Ethics
Ellen McIntire
Business Ethics: A Stakeholder & Issues Management Approach, 6th
edition, 2014.
Author
Joseph W. Weiss
Professor of Management, Bentley University,
Waltham, MA
Management, Ch. 2: Ethical Principles, Quick
Tests, and Decision-making Guidelines; Ch. 3
Stakeholder and Issues Management Approaches;
Ch. 4 The Corporation and External Stakeholders,
Corporate Governance, From the Boardroom to
the
Marketplace;
Ch.
5
Corporate
Responsibilities, Consumer Stakeholders and the
Environment; Ch. 6 The Corporation and Internal
Stakeholders: Values Based Moral Leadership,
Culture, Strategy and Self-Regulation; Ch. 7
Employees and Stakeholder Management; and Ch.
8 Business Ethics and Stakeholder Management in
the Global Environment.
An sample of the diversity of cases
include Bernie Madoff’s Ponzi scandal,
Cyberbullying, Genetic Discrimination, the BP oil
explosion and crisis, Google Books, Google in
China, Conscious Capitalism, Goldman’s Sachs’
Hedging a Bet, Wal-Mart: Challenges with
Gender
Discrimination,
Fracking,
Neuro
marketing,
Sweatshops, Pre-employment
Screening and Facebook.
The author’s thoughtful and conscientious
way of explaining complex issues in
understandable terms is noteworthy. I know that
this book is being used by graduate and
undergraduate university classes nationally and
internationally, as well as by practitioner oriented
institutes as noted earlier. The University of
Phoenix adopted it among many leading
competitors as a teaching text. The book is an
educational read, apart from being a “text,”
because of its depth and scope of detailed yet big
picture subject matter. If ethics is a ubiquitous
topic, Professor Weiss has demonstrated that here.
Reviewed by
Ellen McIntire
Office of Ethics and Compliance
Raytheon Company
Professor Weiss provides a straight-forward, easy
to read book with a practical methodology that
combines a stakeholder approach with issues
management methods and ethical analysis to
examine complex organizational, societal and
global issues. The book has been used by
companies, graduate and undergraduate classes,
and professional associations because of its wide
ranging scope, interesting narrative style, and
actionable decision steps.
Other distinguishing features of the book
include 1). A management perspective that relates
ethics to strategy, structure, culture, and human
resources; 2). A global perspective that deals with
current national, multinational, transnational, and
cross-cultural ethical conflicts and issues; and 3).
A
pragmatic
approach
that
integrates
contemporary and classical research theory to
individual, organizational, industry, and societal
problems.
The eight chapters and 22 cases comprise
a comprehensive, detailed coverage of micro and
macro-level ethical topics: Ch. 1: Business
Ethics, the Changing Environment, and
Stakeholder
CCJ, V. 1, No. 1 -
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May 2016
Announcements
The CYRUS Institute of Knowledge (CIK)-The American University in Cairo Joint 2016
Conference
Entrepreneurship, Responsible Management, and Economic Development – Cairo, Egypt, March 1520th, 2016
CYRUS Institute of Knowledge (CIK), Cambridge, MA, USA and the School of Business, The American
University in Cairo (AUC), Egypt invite you to participate in the joint School of Business-CIK 2016
Conference. We welcome participation of faculty, students, policy makers, business community, civil
society, and regional development leaders. The list of conference co-sponsoring international institutions
is below.
Conference Date: March 15-17th, 2016
Workshops: March, 18-20, 2016
Location: The American University in Cairo, Egypt
Extended Deadline to Submit Abstract: January 15th, 2016
Scholars and practitioners are invited to submit an Abstract for an in-person paper presentation and
workshop related to the conference theme and preferred topics of interest listed below. Abstracts should
be about 500 words and include a specific research question (aims and objectives), methodological
approach, and results. Proposals submitted will undergo a double-blind peer review process. Accepted
proposals will be published in the conference proceedings in electronic format. The best papers will be
double-blind reviewed for possible publication in the CIK Electronic Journal, the CYRUS Chronicle. Full
paper submission is optional for the conference.
We welcome participation from public and private sectors to attend the conference. Participants will find
presentations enlightening and enriching their personal and professional life. Additionally, there will be
significant opportunities for networking. To register for the conference please
check: http://www.cyrusik.org/conference2016/registration.
Preferred Topics are:
Entrepreneurship, Family-owned Enterprises, Social Entrepreneurship, Women Entrepreneurship, SMEs,
Innovation, Responsible Management, Corporate Governance, Economic Development, Sustainability,
and Leadership. The workshops objectives are to provide practical implications for teaching, research,
and public policies.
For additional inquiry about the conference please contact us
at: CIK2016@aucegypt.edu or Contact@Cyrusik.org. For additional information about CIK and AUCSchool of Business please visit:http://www.cyrusik.org/, http://www.aucegypt.edu/business/pages,
respectively.
Conference Co – chairs
Dr. Nader Asgary, President of CIK and Professor of Management and Economics, Bentley University,
Waltham MA, USA,
Dr. Tarek Hatem, head of Entrepreneurship and leadership unit and Professor of Entrepreneurship and
Strategy, School of Business, The American University in Cairo, Egypt.
Academic Committee
Dr. Samer Atallah, Assistant Professor of Economics, School of Business, The American University in
Cairo;
Dr. Nizar Becheikh, Associate Dean for Graduate Studies and Research and Professor of Strategy and
Innovation Management, School of Business, The American University in Cairo, Egypt;
Dr. Shariar Khaksari – Member of Board of Director of CIK and Professor of Finance, Suffolk
University,
Professor Tagi Sagafi-nejad, Professor Emeritus, Loyola University Maryland and former Radcliffe
Killam Distinguished Professor, Texas A&M International University;
Dr. Massood Samii, Member of Board of Director of CIK and Professor of International Business
department, Southern New Hampshire University, New Hampshire University, USA.
The conference co-sponsoring international institutions are:






The American University of Cairo, Cairo - Egypt
Bentley University – USA
Southern New Hampshire University – USA
Suffolk University – USA
University of Stellenbosch – Bellville Park Campus – South Africa
Uninove University (São Paulo) – Brazil
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CCJ, V. 1, No. 1-
May 2016
Announcements
Call for Papers
The CYRUS Institute of Knowledge invites you to participate in our upcoming conference,
Entrepreneurship and Ethical Leadership for Sustainable Global Development. The conference is
co-sponsored by Bentley University, Southern New Hampshire University, and Suffolk University.
Date: April 20-23rd, 2017
Location: Harvard University Campus, Cambridge MA 02138
Deadline for Submitting Abstract: September 30th, 2016
All scholars and practitioners are invited to submit a proposal, a half page abstract, summarizing the
content of their research. We also encourage participants to submit a proposal with other participants to
run a session together. To submit a proposal or for additional information please consult our website:
http://cyrusik.org.
We welcome participants from both the public and private sectors to attend our conference. Many
participants will find presentations enlightening and enriching to their personal and professional lives.
Additionally, there will be significant opportunities for networking. To register please consult the
aforementioned website.
We welcome submissions that represent various business disciplines, economic development matters, and
cultural issues. We are interested in examining challenges and opportunities related to the issues listed
below.
All submitted proposals will be reviewed by a double blinded Program Committee and referees.
Electronic proceedings will be generated from all accepted proposals. Of these, a select number of
exceptional papers will be published in CIK’s Electronic Journal.
Preferred Topics of Interest
Entrepreneurship; Innovation and Development; Business Development and Governance; Natural
Resources and Sustainable Development; leadership and Cultural Characteristics; Women and Business
Development; Higher Education Institutions; Ethics and social Responsibility; Institution and
Development; Organization and Cultural Issues
Further Topics
Accounting; Economics; Finance; Information and Communication Technology; International Business
and Cultural Issues; International Economics, International Finance; Marketing; Project Management;
Statistics; Strategy; Decision Science
Conference Executive Committee
• Dr. Nader Asgary – President of CIK; Professor of Management and Economics, Bentley University
• Dr. Shariar Khaksari – Member of Board of Directors of CIK; Professor of Finance, Suffolk University
• Dr. Massood Samii – Member of Board of Directors of CIK; Professor and Chairman of International
Business department, Southern New Hampshire University
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CCJ, V. 1, No. 1-
May 2016
The Cyrus Chronicle Journal Submission Guidelines
Basics of the Journal’s Peer Review Process:
Submissions to the Cyrus Chronicle Journal should be no more than 7000 words and are subject to
certain standard tests. By submitting a paper, authors agree:
1. To allow the Journal to test for originality;
2. That the paper has not been submitted for publication elsewhere;
3. That on acceptance, its copyright will be transferred to the Journal.
Title/Abstract page:
The manuscript should start with a page that includes the title and an abstract of up to 500 words. This
should not contain any information that identifies the author(s).
Keywords: Include five keywords
Body of the paper:
Introduction: state clearly the objective of the paper and its research approach and method.
Literature Review: limit this to the articles, books, and other sources that have a direct relationship to the
paper’s subject.
Theoretical Model: explain the potential usefulness of any theoretical model used.
Empirical Section: provide appropriate citations to the statistical methods and procedure used.
Conclusion: summarize key findings, their importance to the field, and any potential for further research.
Style of presentation:
The text should be double-spaced and fully justified, with 1 inch margins (2½ cm) on all sides.
References, endnotes, and appendices should be single spaced. Font type should be 12-point Times New
Roman. Pagination should start with the Abstract Page. Use endnotes instead of footnotes; they should be
concise. Citations to the literature should be included in the text, not in the endnotes, for example:
“Several studies (AAA and & BBB, 1976; CCC, 2003a, 2003b) concur with this finding”.
For articles with three or more co-authors, cite the first author’s last name followed by “et al.” For a
direct quotation give author’s last name, date and page number, for example, “XYZ, 2000, 50”.Figures
and tables should be placed at the end.
References/Citations:
Journal/periodical articles
Asgary, Nader and Li, G. (2014). ”Corporate Social Responsibility: Its Economic Impact and Link to the
Bullwhip Effect” Journal of Business Ethics, 81, 1, 223–234.
Financial Times. (1996). “Survey – Czech Republic: Message from the people. December 6, 3.
Books
Dunning, John H., Ed. (2003). Making Globalization Good: The Moral Challenge of Global
Capitalism. Oxford University Press.
Stiglitz, Joseph E. (2006). Making Globalization Work. W. W. Norton.
Tagi Sagafi-nejad, in collaboration with John H. Dunning (2008). The UN and Transnational
Corporations: From Code of Conduct to Global Compact (Indiana University Press for the UN
Intellectual History Project).
Rainey, Hal G. (2014). Understanding and Managing Public Organizations. Jossey-Bass.
Chapter in Edited Book
Rainey, Hal G. (1993). “Toward a Theory of Goal Ambiguity in Public Organizations”. In J. L. Perry,
ed., Research in Public Administration, Vol. 2, pp. 278–294. Greenwich, CT: JAI Press.
79
CCJ, V. 1, No. 1-
May 2016
CIK, Box 380003, Cambridge, MA 02238-0003, USA
http://www.cyrusik.org/
80
CCJ, V. 1, No. 1-
May 2016

CYRUS CHRONICLE JOURNAL (CCJ) – Volume 1 – May

Transcription

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