GTAP Resources: Resource Display
| GTAP Resource #1221 |
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"Does Globalization Affect Growth?" by Dreher, Axel Abstract The paper presents an index of globalization covering its three main dimensions: economic integration, social integration, and political integration. To measure these dimensions, 23 variables have been combined to three sub-indexes and one overall index of globalization with principal components analysis. The analysis partitions the variance of the variables used and determines the weights in a way that maximizes the variation of the resulting principal component. Therefore, the index captures the variation as fully as possible. Using panel data for 123 countries in 1970-2000 the effects of the overall index of globalization as well as the sub-indexes constructed to measure the single dimensions on economic growth are analyzed empirically. The paper starts with a within groups specification but later addresses endogeneity by using the Arellano-Bond GMM estimator which provides a test. Several tests for the stability of the results - including least median deviations - are also employed. On average, countries that rank high on the index of globalization, experienced higher growth rates. This is especially true for actual economic integration and - in developed countries - for the absence of restrictions on trade and capital. There is although evidence, that cross border information flows promote growth whereas political integration has no effect. The accusation that poverty prevails because of globalization is therefore not valid. To the contrary, those countries with the lowest growth rates are those who did not globalize. Countries like Rwanda or Zimbabwe, e.g., insulated themselves from the world economy. They have poor institutions which repress growth and promote poverty. On the other hand, globalization alone will not be enough to reduce poverty on a large scale. As an example, it has been shown that Latvia could increase its economic growth rate from 5.94 to 7.1 if it would be as integrated with the rest of the world as Spain is. This example shows the limitations of the globalization process in reducing poverty. For Latvia to become as globalized as Spain would require enormous efforts which are nearly impossible to achieve in the short run but will take many years. |
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- Economic growth |
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Public Access  PDF Version (204.7 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
