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Risk and Reward of Embracing Globalization: The Governance Factor

Shang-Jin Wei

“Shui Ke Zai Zhou, Yi Ke Fu Zhou.” (Water can carry a boat; It can also sink a boat.)

The statement by a 7th century Chinese prime minister quoted above can be applied aptly to the current discussion on globalization as well. Globalization can be good, and globalization can be bad. So which is it? Does it depend on the home country conditions, and particularly, the quality of public governance? Would globalization itself provide impetus for the home country to change its public governance? These are the questions that this paper hopes to shed some light on.

Many things in life have a beneficial and a less beneficial sides. Rains can help crops to grow, but can also make some people sick, especially if they don’t carry umbrellas. The Internet facilitates information exchange, but can also spread computer viruses (remember the “I Love You” bug?), especially if one is not equipped with an appropriate anti-virus kit.

In the 1980s and early 1990s, there was a broad consensus that embracing globalization, liberalizing trade, foreign direct investment, and other forms of capital flows is a sure way for developing countries to develop. Starting from the late 1990s, there has been a new conventional wisdom that not all forms of globalization are necessarily good for all countries at all times. Some (Bhagwati, 1998; Rodrik, 1998; Stiglitz, 1999) have advocated the position that unfettered international capitals can do as much harm to some developing countries as do good. Others have chosen to express themselves more vocally (and sometimes physically) such as those protesting outside the World Trade Organization meeting in Seattle in November, 1999, and those protesting outside the IMF/World Bank in April, 2000.

This paper reflects on Asia’s recent experience in embracing globalization. The most central message is that globalization and domestic public governance go hand in hand. The risk and reward for a country to embrace globalization depends in part on the quality of its public governance. This can be expanded into five main points which are elaborated later in the paper.

  • First, embracing globalization has been, is and still will be a key ingredient for successful economic development.
  • Second, globalization does carry new dangers for some countries.
  • Third, the quality of public governance in a developing country—of which, the extent of bureaucratic corruption is an aspect—plays an important role in a country’s ability to absorb the beneficial aspects of globalization.
  • Fourth, the quality of public governance also affects a country’s ability to minimize the negative effects of globalization.
  • Fifth, globalization may offer new incentives and impetus for developing countries to improve the quality of public governance and to reduce corruption.

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