Higher Education, Globalization and Economic Development in Virginia

Table of Contents

Page
I. Introduction and Overview 2

A. Why SCHEV did this study

B. Background of SCHEV actions

C. Overview of Paper

II. Impact of Globalization on the Economy and Today’s Higher

Education Graduates: A National and State View 4

A. World Approaches to Globalization of Economies and

Higher Education

B. Globalization in the United States

C. Virginia Responses to Globalization

III. Globalized Higher Education as a Driver of State Economic

Development 10
A. Introduction – conceptualizing a Virginia higher
education and economic development pipeline.
B. Taxonomy of potential players in such a pipeline
C. UBED Model
D. Virginia Successes

E. Lessons learned from examples

IV. Blueprint for Future Action 15

A. Recommendations for SCHEV

B. Recommendations for Institutions

C. Recommendations for the leadership of the Commonwealth of Virginia

State Council of Higher Education for Virginia

I. Introduction and Overview

Virginia’s ability to connect with the globe has never been more important. The worldwide shift
from manufacturing-based to knowledge-based economies requires a more educated and skilled
workforce. In recent years, countries able to supply such a workforce have experienced
considerable growth in wealth, prosperity, and stature. Virginia, like all other nations and states,
must ensure its future competitiveness in this new global economy by positioning itself to seize
lucrative and lasting economic development opportunities. The capacity of institutions of higher
education to train a competent workforce in this environment is vital. Increased awareness and
concern about these issues of global competitiveness led the State Council of Higher Education
for Virginia to study the nexus between the internationalization of higher education and
statewide economic development concerns.
In early 2009, SCHEV initiated an effort to assess the status of the Commonwealth’s
international education programs. A survey was distributed to the public and private institutions,
focusing on critical aspects of contemporary international education programs as identified by an
ad hoc group of university-based international program directors. The survey inquired about
1) internationalization efforts of their institutions as reflected by mission statements and strategic
plans, 2) inclusion of global concepts in the General Education curriculum, 3) foreign language
and study abroad requirements and participation, and 4) international student populations.
Institutions were also asked about funding and administrative structure of international program
offices, and economic development efforts. The survey responses and a summary of the results
can be found at Following collection of survey data, Council was briefed in March 2009 by a
panel of experts discussing the roles that higher education can play in strengthening our state’s
competitive standing. Uliana Gabara, Dean of International Education at the University of
Richmond, described what other nations have done to improve their competitive positions in
higher education, providing a sense of the challenges ahead for the Commonwealth. Tom
Hennessey, Chief of Staff at George Mason University, discussed the concept of the “global
university” at his institution and lessons learned from its multicultural student body and its
programs and sites in other countries. Finally, Nancy Agee, member of the Board of Visitors at
Radford University, discussed her institution’s internationalization efforts, especially in the
health care disciplines, which have been at the forefront of the movement to attract and train
globally competent workers. Council took from the briefing an imperative to foster
communication between those involved in internationalization of higher education and those
responsible for state economic development.

In December 2009, SCHEV convened a meeting of international education and economic

development professionals to discuss the alignment of the internationalization of higher
education and economic development. The meeting attempted to address two specific
inquiries: 1) is there a productive role for statewide coordination of institutional efforts at
globalization?; and 2) how should that role be defined to support Virginia’s competitiveness in
education and economic development?

In attendance were representatives of international programs and offices from 21 Virginia

institutions, members of Virginia’s economic development community, members of the Virginia
Council for International Education, Council members and SCHEV staff. Attendees heard
remarks about international education from the University of Richmond’s Dean of the Office of
International Education and from a panel of speakers that highlighted the educational
implications of the partnership between Rolls-Royce, the University of Virginia, and Virginia
Tech, both for cultural competency development and for discipline-specific knowledge. General
themes discussed in the meeting included:

• the development of global competence,

• the scope of international education at Virginia’s institutions,

• leveraging international students for economic development,

• the challenges posed to the U.S. business and higher education sectors by U.S.
immigration policy, and
• how the Commonwealth, and its higher education and business communities can
work together to meet Virginia’s economic development needs.
 Overview of Paper: This paper contains key findings that will be useful to state decision
makers seeking to understand the connection between international higher education and
economic development. The paper describes current worldwide and national trends that have
given rise to efforts by governments and educational systems to globalize higher education. It
examines the current and projected impact of these trends on Virginia’s economy, its institutions
of higher education, and their students. Lastly, it highlights current successful economic
development projects that have aligned with globalized higher education and shapes the lessons
learned from these projects into recommendations for Virginia’s higher education and economic
development leaders.

II. Impact of Globalization on the Economy and Today’s Higher Education Graduates: A
National and State View

World Approaches to Globalization of Economies and Higher Education: The globalization of

the economy and improvement of educational systems in certain regions of the world have put
pressure on the United States to maintain its position as the leading higher education system in
the world. A marked decline in our production of graduates relative to that of other nations is
widely cited as evidence of slipping quality of the United States higher education system.
Statistics by the Organisation for Economic Development (OECD) show that the proportion of
America’s young adult (ages 25-34) population with a college degree has remained fairly stable
over the past 40 years at about 39%. However, in the past decade, other OECD countries have
surpassed the US and reached rates of 54% in degree attainment. 1

These statistics also reflect the fact that many emerging economies of the world are
emulating America’s formula for success by investing heavily in higher education and research
and development. Some, such as Qatar, Singapore, and the United Arab Emirates, promote this
strategy as a matter of public policy. For example, Singapore’s national strategy has been to
revamp its P-16 educational system with a stronger focus on math, science and technology, and
language skills. The strategy of these Middle Eastern countries has been to recruit prestigious
foreign universities to establish local campuses. These countries are now poised to compete
directly with the US and the rest of the world for the investments of global firms that create jobs
and drive economic growth. “Globalization” has also become a specialized term in higher
education that relates to how individual institutions seek to ensure the effectiveness of their
academic programs in a global society. In the context of higher education, globalization has
been defined as “the broad economic, technological, and scientific trends that directly affect
higher education and ‘are largely inevitable’. ” 2 Globalization affects the educational needs of
today’s postsecondary graduate by altering the knowledge, skills, and abilities graduates need to
be effective in their chosen profession and to benefit society as a whole.

Globalization in the United States: Across the nation, states have responded to globalization by
passing legislation supportive of international education and establishing task forces to study
international education at the secondary level. Other state government initiatives have included
analyzing statewide capacity at both the secondary and post-secondary levels, examining best
practices in delivery of international education activities, exploring international and
intercultural partnerships, and polling citizens regarding support of international education.3

One way in which U.S. institutions of higher education are responding to the
phenomenon of globalization is by internationalizing their campuses and curricula.
Internationalization refers to the specific policies and programs undertaken by governments,
academic systems, institutions, and individual departments to cope with globalization. It has
been defined as “the integration of an international dimension into the teaching, research, and
4
service functions of higher education.” Internationalization takes on a variety of forms and
many of the methods and strategies of internationalization on postsecondary campuses can be
generally categorized as international education. International education is described as
“programs of study, service, and research that enlarge the understanding of the world beyond
our borders and improve the comprehension of people in other societies of the dynamics and
values that shape the United States.”5

According to the American Council on Education (2005), indicators of

internationalization can be found in an articulated mission, academic offerings, organizational
infrastructure, external funding, institutional investment in faculty, the presence of international
students, and
student programs.6 On-campus functions can include leveraging the presence of international
students to provide cultural knowledge, activities of internationally-themed research centers, and
short term and long term study abroad. In terms of relationships with foreign entities, it can take
the form of partnerships, research collaborations and exchange programs with international
universities, and establishing international internship programs for graduate and professional
students. Internationalization efforts are one product of higher education’s recognition of its
responsibility to graduate globally competent citizens and to meet the acknowledged educational
needs for the 21st Century.

Rather than a term with one universally agreed-upon definition, “global competence” is a
concept that has been collaboratively devised by education and business professionals. It is used
to embody the knowledge, skills, and abilities today’s graduates need to function effectively in a
globally interdependent society. It commonly refers to a need for cultural understanding and
awareness and an ability to interact with people from different backgrounds. Other components
of global competency include cross-cultural communication skills, proficiency in a language
other than one’s own (a skill which facilitates cultural understanding), knowledge of world
regions, and an awareness of the international dimensions of one’s profession. Developing global
competency is not a definitive goal, rather an on-going process that includes: frequent interaction
and exchange with people from other cultures, up-to-date knowledge of world events, exposure
to current research and regular use of intercultural communication skills.

The need and applicability of global competencies span a variety of professions

including, but not limited to, business, economic development, government affairs, and science
and technology education. There has been a national concern that these skills are lacking in
today’s graduates. The American Council on Education (2003) has indicated that graduates of
U.S. business education programs were underprepared with regard to international knowledge
and the American Association of Colleges and Universities (2006) has found that business
leaders believe that colleges are underemphasizing 'global issues.’ Researchers have stressed the
need for U.S. undergraduate engineering students to gain international experiences as well. 7 To
address such findings, some teacher preparation programs are facilitating international student
teaching experiences, and other institutions have international service trips

in which students can participate regardless of their academic major. In addition to specific
disciplines adding study or work abroad experiences to their programs, partnerships between
higher education institutions and international companies located in the United States also
provide international and intercultural experiences that can foster the acquisition of global
competencies.
 While education abroad has been a traditional means by which to incorporate a global
perspective into an academic program, United States higher education institutions are
recognizing that intercultural learning can also be greatly enhanced by increasing opportunities
for international interactions between students on domestic campuses. This strategy is often
referred to as “internationalization-at-home”. As described in one recent study,
internationalization-at-home is the development of “a conceptually-integrated systems approach
to international education that encompasses the entire university. Its main goal is to have
international education pervade the university so that all students, faculty, and staff are
internationally engaged at some point during their college careers.” 8

The presence of international students on campus plays an important role in globalization

strategies, since interaction with international students is one way in which U.S. students can
acquire, practice, and strengthen global competencies. Speaking on this subject, Allan Goodman,
President and CEO of the Institute of International Education (IIE), stated that international
students’ “active engagement in U.S. classrooms provides students with the valuable skills that
will enable them to collaborate across political and cultural borders to address shared challenges
in the years ahead.” Some states have embraced the recruitment of international students as a
statewide imperative, and have developed campaigns promoting their education systems and
other state assets as a study destination. 9 Whether attributed to such active efforts or not,
international students continue to flock to U.S. colleges and universities. According to the 2009
Open Doors Report by the Institute of International Education (IIE), the number of international
students in United States institutions of higher education increased by 8% to 671,616 in the
2008/09 academic year.10 The majority of these students are enrolled in business and
management programs, with a significant number enrolled in engineering, math, and computer
science programs.

Virginia Responses to Globalization: For the Commonwealth of Virginia, international issues

and inter-cultural competence are particularly important. According to the Virginia Council on
International Education (VaCIE), there are several factors that make the development of global
competency essential for the state’s higher education graduates, including:
1. more than 10 percent of Virginia’s workforce is employed in the federal
government and military, employment sectors which depend on a globally
competent workforce;
 2. Virginia is one of the top ten states in the U.S. for incoming immigrants
and foreign nationals;

3. the Commonwealth’s communications and information technology sector is a

global enterprise; and
4. the Commonwealth is one of the top five creators in the country of high-
technology jobs, and its role in the national and international communities
continues to grow.

The Virginia Economic Development Partnership (VEDP) lists more than 800 internationally-
owned businesses from 45 countries in the Commonwealth. In trying to respond to the workforce
demands of these businesses, Virginia’s postsecondary students have a great incentive to acquire
industry-specific skills, use foreign languages, apply and enhance knowledge of world regions,
and use and develop intercultural skills. Accordingly, as VaCIE has articulated, our
Commonwealth and its universities and colleges today face unprecedented challenges for
international education.

Despite an increase in study abroad participation by students in Virginia’s colleges and

universities, international educators are still challenged to find ways to ensure that all students
are globally competent. As with higher education institutions nationwide, Virginia’s institutions
have initiated a variety of efforts to explore the establishment of branch campuses in other
countries, to develop exchange relationships with foreign institutions and to internationalize their
campuses at home. Analysis of data collected through the SCHEV survey referenced earlier in
this report found that over half of the state’s institutions (public and private) have a general
education requirement that includes a global theme. Roughly 37% of the public institutions and
18% of the privates have a foreign language proficiency requirement. And approximately 37% of
the publics and 23% of the privates have a requirement for experiential learning abroad in one or
more program of study. While the percentages suggest that, in aggregate, Virginia has room to
expand its provision of international education, individual survey answers reflected the
significant time and attention that many of the institutions have dedicated to
globalization initiatives in recent years.

Globalization efforts are not limited to the four-year institutions, or to the larger or urban

campuses. The Virginia Community College System (VCCS) engages in many efforts to

interest students in travel and study abroad and many community colleges have on-campus

activities such as cultural awareness days and international clubs. To prepare faculty for

multicultural classroom experiences and provide them with global perspectives, VCCS also

boasts a VaCIE-VCCS International Exchange Program in which faculty can study educational

systems in the United Kingdom, the Netherlands, India and Ghana. Global Virginia

(www.globalvirginia.com), a program housed at the Southwest Virginia Higher Education Center

is a notable project in the rural areas of southwest Virginia, where relatively few citizens have

had opportunities for international travel. This project coordinates international education

programming for a consortium of small two- and four-year colleges and provides international

business counseling for firms in the region. Established in 2003 via grant funding from the

Virginia Tobacco Commission, Global Virginia also receives grants from the U.S. Department of

Education’s Business and International Education (BIE) program for short-course summer study

programs in Mexico and China. In general, educators in Virginia’s rural areas are challenged to

find opportunities to develop global skills in a population that has had little international
exposure. They work on instilling in the students an appreciation for globalization with programs

that focus on preparing them to help local, home-grown businesses to expand into the global

marketplace rather than only grooming them to work in global businesses outside of Virginia.

As noted earlier in this report, recruitment of international students is another important

activity linking higher education and state-based economic development. Virginia’s institutions
of higher education, like other U.S. institutions, have increased their efforts in this area due to
the anticipated boost of tuition revenue and enhancement of educational quality. Not only do
international students pay full, out-of-state tuition, but they and their families purchase many
goods and services in the state. Thus, they represent a significant contribution to Virginia’s
economy. The Institute of International Education estimates that foreign student expenditures in
Virginia totaled almost $338 million in 2009.12 When combined with internationalization-at-
home advantages discussed above, it is clear that international student recruitment efforts
provide a tangible return on investment for both institutions and for the state. However, post
9/11 Federal immigration policies make it more difficult for international students to remain in
the United States after graduation. Pre-9/11, these students frequently stayed, gained
employment, earned citizenship, and contributed to our economy, often by working for
technology-focused start-up companies. Under today’s tightened regulations, most take their
training and education back to their home countries or elsewhere after graduation.

III. Globalized Higher Education as a Driver of State Economic Development

Technological innovation of the past two decades has made the world a level playing field in
which geographical divisions are increasingly irrelevant. In higher education, this effect can be
observed in the many relationships between academia and foreign universities and businesses,
especially among the large research institutions. Such relationships have the potential to
generate global economic benefits for Virginia. With effective organization and information-
sharing, a distinct pipeline utilizing these relationships could be developed for the delivery of
future innovation and economic development. A variety of groups can come together to form
such a pipeline, including:
¾ Institutions of Higher Education. Collaborations need not be limited to large public
research institutions; all of our institutions have individual strengths.

¾ University Associations: The University Based Economic Development (UBED) group

and the Virginia Council on International Education (VaCIE) are associations that offer a
wealth of academic knowledge and scholarship that can be tapped to develop strategies
and effective new projects. Many other associations exist that could be tapped for
expertise and interest in economic development opportunities.
¾ Local Economic Development Authorities and Community Associations: Local economic
development authorities, Chambers of Commerce, manufacturing alliances, and business
associations have a clear financial incentive to support the development of innovative
partnerships. Their members are well-connected with business and community leaders.
¾ Government entities: The Virginia Economic Development Partnership (VEDP), a state
government agency, and the Tobacco Indemnification and Community Revitalization
Commission, a political subdivision of the Commonwealth of Virginia, have close
relationships to executive and legislative branches and access to state funding that could
potentially support new initiatives of mutual interest. Advisory groups: The Grow by
Degrees Campaign of the Virginia Business Higher Education Council is promoting a
substantial increase in the number of associate’s, bachelor’s and graduate degrees
awarded in the state, in order to ensure Virginia’s competitiveness in the global
knowledge-based economy. The Council on Virginia’s Future has studied and engaged
in a community forum on enhancing the alignment of higher education with workforce
needs. As these initiatives naturally overlap with the goals of globalized higher
education, these groups promote and welcome collaboration with higher education
institutions.
¾ Research parks like the Virginia Biotechnology Research Park, which was developed in
partnership with Virginia Commonwealth University, seek business partnerships with
companies that are engaged in innovative research and technology ventures. The
directors and staff of such centers may be untapped resources for identifying global
companies that would be interested in establishing partnerships with Virginia’s
universities.
A flow chart developed by University Based Economic Development (UBED), a group
comprised of university-based economic development academics, provides an effective visual
illustration. The “University Economic Development Model,” below, shows how university
programs and activities combine with business success factors to create even more growth and
attract other new businesses to the community. The economic activity further translates to
benefits for the entire state, with new jobs, better wages, and improved quality of life.

While the above chart is geared toward local inputs and impacts, its themes can expand
quite readily to a global environment. Several recent high-profile ventures with companies
locating or expanding in Virginia provide excellent case studies. Rolls-Royce’s development of
two new research and manufacturing centers, in collaboration with The University of Virginia,
Virginia Tech, and the Virginia Community College System, is having a significant impact on
higher education capacity and economic development in Virginia. The Commonwealth Center
for Aerospace Propulsion Systems (CCAPS), headquartered at UVA, fosters collaborative
aerospace research while creating new education opportunities for engineering students at both
schools. The Commonwealth Center for Advanced Manufacturing (CCAM), which will complete
construction in Prince George County in 2011, will be a flagship operation for the
manufacturing, assembling and testing of aerospace components and products.
These projects hold obvious benefits for the Commonwealth of Virginia in terms of jobs and
tax revenues, but also have extraordinary advantages for the partner institutions and their
students. In the Rolls-Royce project, state funding over a five-year period pays for nine chaired
professorships, endows graduate fellowships, funds undergraduate internships, and provides
matching research funding. In addition, state monies are supporting the renovation of
mechanical engineering laboratories and enhancements to the manufacturing program at the
University of Virginia, which will allow the introduction of a manufacturing minor.
Participating community colleges have also benefitted from engaging in the corresponding
“Produced in Virginia” program, which has facilitated the addition of eight new science and
engineering programs. The Rolls-Royce project has an important nexus with international
education due to the opportunities for students to participate in exchanges and internships
abroad with this very global company. Rolls-Royce has transcended its roots as a British car
manufacturer to become a global aerospace conglomerate, with 45% of its research and
technology, 40% of its employees, and 50% of its new programs located outside the United
Kingdom.

Rolls-Royce has a strong history of partnerships with universities, and the Virginia
collaboration had its genesis in relationships that previously existed between the leadership of
Rolls-Royce and the University of Virginia. However, as emphasized by those involved in this
venture, one institution alone would not have provided enough of an incentive for Rolls-Royce
to choose Virginia over several other qualified states. The company’s confidence in the quality of
the Commonwealth’s higher education institutions and its graduates played a large part in its
decision. State leadership, working through the Virginia Economic Development Partnership,
diligently performed the advance and strategic planning that brought all the players to the table.
While the combination of institutions retained the company’s interest, negotiators revealed that it
was institutional differences that presented the greatest challenges to the process. A natural
hesitation to share information and work together in a transparent manner created a barrier to the
high level of trust needed to develop the necessary collaboration.

Rolls-Royce has been a marquee project since its inception, but it is not an anomaly. A
number of other companies have been drawn to Virginia owing to its capacity for higher
education research and development. In 2006, SRI International aligned with James Madison
University, Rockingham County, the City of Harrisonburg, the Shenandoah Valley Partnership
and the Virginia Economic Development Partnership to develop the Center for Advanced Drug
Research (CADRE) in Rockingham County. SRI International is an independent nonprofit
research organization which is recognized as a world leader in research and technology
development. While based in Silicon Valley, the organization has divisions in Japan and the
United Arab Emirates and promotes its innovations as having global impact in areas such as
health, energy, the environment and education. While CADRE is initially focused on drug
research related to biothreats and developing treatments for neglected and orphaned diseases,
SRI plans to broaden the project to include other Virginia academic institutions and other
strategic programs, such as information technology and education. Not only will the partnership
produce 100 new jobs in the highly technical and well-compensated field of biotechnology, but
SRI’s presence in Virginia is expected to bolster Virginia’s reputation as a center for
biotechnology and provide spinoff opportunities for new companies and additional employment.

The expansion of Canon Virginia’s Newport News operations is another economic

development success story that has grown from a partnership with Virginia higher education.
The company, which is a subsidiary of Canon International, a Japanese company with
worldwide operations and presence, has already been a significant employer in the area for 23
years. This new investment of $600 million will create more than 1000 jobs. A key driver of the
expansion decision was the development of a workforce pipeline by the Virginia Community
College System and Thomas Nelson Community College, which will produce 880 technicians
and supervisors over three years.

Virginia’s success stories with Rolls-Royce, SRI International, and Canon demonstrate
that the Commonwealth’s higher education institutions are a unique commodity that has been
successful in attracting substantial global business investment. On a smaller scale, but no less
important, are the many small and medium sized Virginia businesses that are benefitting from
educational programs designed to provide a skilled workforce to fuel growth and global
expansion. The corresponding benefits of job creation and tax revenue provide a major incentive
for the state to find innovative ways to bolster university based economic development. For
institutions of higher education, investment by corporate partners holds promise for curriculum
development and support and opportunities for internships and employment. Other companies
may well be interested in following Rolls-Royce’s lead in funding academic programs to ensure
that partnering institutions can meet their workforce demands. Given the decline in general fund
support for higher education in the past decade, this potential may prove to be important.

IV. Blueprint for Future Action

The above review of the context of globalization at Virginia’s higher education institutions
reveals a wealth of resources in the Commonwealth. At the same time, it is clear that these
resources must be maximized if the current and expected future deficits of the Virginia
workforce in the global marketplace are to be addressed. The following recommendations,
which were developed from discussions with international education administrators, academics,
and economic development professionals, are meant to help the institutions and state leadership
develop effective collaborative practices. While action on any one recommendation would be a
small positive step, taken together they form a viable scheme for leveraging the
Commonwealth’s resources to ensure our global competitiveness.

A. RECOMMENDATIONS FOR SCHEV

1. Strengthen relationships with the Virginia Council on International Education

(VaCIE) and University Based Economic Development (UBED) by providing
a SCHEV staff member as a liaison. The liaison could provide assistance in
coordination and information sharing activities in support of economic
development initiatives and international education.
 2. Explore the potential for the creation of model collaborative international
education initiatives such as critical language instruction, which could help save
costs and increase participation in globalization activities.
3. Work with the Secretary of Education to obtain input from institutional
and government representatives on how to strengthen relationships
between economic development interests and higher education.

B. RECOMMENDATIONS FOR INSTITUTIONS:

1. Organize knowledgeable, well-connected faculty and staff to develop a system of
information-sharing with businesses and other institutions in order to determine
areas of potential collaboration.
2. Develop a model for a local economic development pipeline which is able to tap
into the existing international connections of faculty and alumni.

3. Compile data that would demonstrate the economic development benefits of

current international education initiatives to state leaders.
4. Develop programs to ensure that students joining the Virginia workforce have the
global competence required to enable existing Virginia businesses to expand and
compete in the international marketplace.

C. RECOMMENDATIONS FOR THE LEADERSHIP OF THE

COMMONWEALTH OF VIRGINIA:

1. Obtain input from VEDP on how to foster information sharing and

collaboration between statewide economic development interests and
institutions of higher education.
2. Develop a process to keep Virginia’s congressional delegation informed on a
regular basis of opportunities to draw earmarked federal research and
development projects and dollars to Virginia institutions.
3. Consider how best to advocate for federal policies that affect immigration and
visa policies for international students, who currently play a vital role in
STEM educational programs and jobs.
DATA AND EMPIRICAL STRATEGY

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1
in lists the countries and their income groups in the sample. The choice of countries selected for
this study is primarily dictated by availability of reliable data over the sample period among all
OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40], we
use annual data in order to maximize sample size and to identify the parameters of interest more
precisely. In fact, averaging out data removes useful variation from the data, which could help to
identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power
parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The
economic dimension of KOF index is derived from Dreher et al. .

We use some other variables, along with economic globalization to control other factors
influenced economic growth. Table S2 in shows the variables, their proxies and source that they
obtain.

We relied on the three main approaches to capture the effects of economic globalization on
economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which
estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the
complementary policies in the form of level of human capital and financial development. To test,
the interactions of economic globalization and financial development (KOF*FD) and economic
globalization and human capital (KOF*HCS) are included as additional explanatory variables,
apart from the standard variables used in the growth equation. The KOF, HCS and FD are
included in the model individually as well for two reasons. First, the significance of the
interaction term may be the result of the omission of these variables by themselves. Thus, in that
way, it can be tested jointly whether these variables affect growth by themselves or through the
interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD,
these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect
of globalization, the countries are split based on income level. Accordingly, countries were
classified into three groups: high-income countries (3), middle-income (21) and low-income (9)
countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum
2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables
and KOF. These interactions will be added to the baseline specification.

FINDINGS AND DISCUSSION

This section presents the empirical results of three approaches, based on the GMM -dynamic
panel data; in presents a preliminary analysis on the effects of economic globalization on
growth. displays coefficient estimates obtained from the baseline specification, which used
added two interaction terms of economic globalization and financial development and economic
globalization and human capital. reports the coefficients estimate from a specification that uses
dummies to capture the impact of income level of OIC countries on the growth effect of
globalization.

BASELINE RESULTS.
Notes: Dependent variable: real GDP per capita in logarithm.
Cross-country panel data consisting of annual spanning 1980–2008.
Estimation method: Dynamic GMM estimator Arellano and Bond (1991).
Table 2

Economic globalization and Growth: Interaction terms.

Notes: Dependent variable: real GDP per capita in logarithm.
Cross-country panel data consisting of annual spanning 1980–2008.
Estimation method: Dynamic GMM estimator Arellano and Bond (1991).
A full set of year dummies is included to control for common time effects. The full regressions
includes lagged of GDP per capita, government consumption, consumer price index, secondary
school enrolment, gross capital formation, Liquid liability and ICRG.
Numbers below coefficients are the t-statistic.
***, **, *denotes statistical significance at the 1%, 5% and 10% levels, respectively.
Growth effect of globalization at different income levels of countries.
Notes: Dependent variable: real GDP per capita in logarithm. Cross-country panel data
consisting of annual spanning 1980–2008.
Estimation method: Dynamic GMM estimator Arellano and Bond (1991).
A full set of year dummies is included to control for common time effects. The full regressions
includes lagged of GDP per capita, government consumption, consumer price index, secondary
school enrolment, gross capital formation, Liquid liability and ICRG.

The results in indicate that economic globalization has positive impact on growth and the
coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the
existing empirical literature that support beneficial effect of globalization on economic growth

According to the theoretical literature, globalization enhances economic growth by allocating

resources more efficiently as OIC countries that can be specialized in activities with comparative
advantages. By increasing the size of markets through globalization, these countries can be
benefited from economic of scale, lower cost of research and knowledge spillovers. It also
augments capital in OICs as they provide a higher return to capital. It has raised productivity and
innovation, supported the spread of knowledge and new technologies as the important factors in
the process of development. The results also indicate that growth is enhanced by lower level of
government expenditure, lower level of inflation, higher level of human capital, deeper financial
development, more domestic investment and better institutions.

represents that the coefficients on the interaction between the KOF, HCS and FD are statistically
significant at 1% level and with the positive sign. The findings indicate that economic
globalization not only directly promotes growth but also indirectly does via complementary
reforms. On the other hand, the positive effect of economic globalization can be significantly
enhanced if some complementary reforms in terms of human capital and financial development
are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires
skilled workers. The results of this study confirm the importance of increasing educated workers
as a complementary policy in progressing globalization. However, countries with higher level of
human capital can be better and faster to imitate and implement the transferred technologies.
Besides, the financial openness brings along the knowledge and managerial for implementing the
new technology. It can be helpful in improving the level of human capital in host countries.
Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital
to the productive and compatible sectors in developing countries. Overall, with higher level of
human capital and stronger financial systems, the globalized countries benefit from the growth
effect of globalization. The obtained results supported by previous studies in relative to financial
and trade globalization such as

shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant
at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign.
It means that increase in economic globalization in high and middle-income countries boost
economic growth but this effect is diverse for low-income countries. The reason might be related
to economic structure of these countries that are not received to the initial condition necessary to
be benefited from globalization. In fact, countries should be received to the appropriate income
level to be benefited by globalization.

The diagnostic tests in show that the estimated equation is free from simultaneity bias and
second-order correlation. The results of Sargan test accept the null hypothesis that supports the
validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic

growth. Unfortunately, theoretical and the empirical literature have produced conflicting
conclusions that need more investigation. The current study shed light on the growth effect of
globalization by using a comprehensive index for globalization and applying a robust
econometrics technique. Specifically, this paper assesses whether the growth effects of
globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important
conclusions from the empirical analysis. First, the coefficient measuring the effect of the
economic globalization on growth was positive and significant, indicating that economic
globalization affects economic growth of OIC countries in a positive way. Second, the positive
effect of globalization on growth is increased in countries with higher level of human capital and
deeper financial development. Finally, economic globalization does affect growth, whether the
effect is beneficial depends on the level of income of each group. It means that economies should
have some initial condition to be benefited from the positive effects of globalization. The results
explain why some countries have been successful in globalizing world and others not.
The findings of our study suggest that public policies designed to integrate to the world might are
not optimal for economic growth by itself. Economic globalization not only directly promotes
growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global
economy is only one part of the story. The other is how to benefits more from globalization. In
this respect, the responsibility of policymakers is to improve the level of educated workers and
strength of financial systems to get more opportunities from globalization. These economic
policies are important not only in their own right, but also in helping developing countries to
derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires

skilled workers. The results of this study confirm the importance of increasing educated workers
as a complementary policy in progressing globalization. In fact, countries with higher level of
human capital can better and faster imitate and implement the transferred technologies. The
higher level of human capital and certain skill of human capital determine whether technology is
successfully absorbed across countries. This shows the importance of human capital in the
success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for
implementing the new technology. It can be helpful in upgrading the level of human capital in
host countries. Moreover, strong and well-functioned financial systems can lead the flow of
foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is
beneficial depends on the level of income of countries. High and middle income countries
benefit from globalization whereas low-income countries do not gain from it. As
Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because
their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor
more. The structure of the export of low-income countries heavily depends on primary
commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries.
Therefore future research for all OIC countries would shed light on the relationship between
economic globalization and economic growth.
Funding Statement

The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International
Scholarship (MIS). The funders had no role in study design, data collection and analysis,
decision to publish, or preparation of the manuscript.

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