Does Globalization Affect Growth
LDoes Globalization Affect Growth?
Axel Dreher§
First version: October 2002 This Version: January 2003
Abstract The paper presents an index of globalization covering its three main dimensions: economic integration, social integration, and political integration. Using panel data for 123 countries in 1970-2000 it is analyzed empirically whether the overall index of globalization as well as sub-indexes constructed to measure the single dimensions affect economic growth. The results show that globalization promotes growth – but not to an extent necessary to reduce poverty on a large scale. The dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries. Although less robustly, information flows also promote growth whereas political integration has no effect.
Keywords: Globalization, Growth JEL-Codes: H77, O57, F43 Acknowledgement: The author is grateful for helpful suggestions by Bernhard Boockmann, Quan Li, Verena Liessem, Fulvio Mulatero and Torsten Saadma. All errors are mine.
§ University of Mannheim, Lehrstuhl für Volkswirtschaftslehre, L7, 3-5, D-68131 Mannheim, Germany, e-mail: mail@axel-dreher.de
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1. Introduction
Many non-economists expect the costs associated with globalization to exceed its benefits. Fears of an erosion of social and environmental standards, high poverty rates in less developed countries and ever higher frequencies of financial crisis resulted in protests like that in Seattle in 1999. Quite the contrary, most economists strongly believe the net effect of globalization to be positive. Apart from economic theory, this optimism is supported by empirical studies as well. To measure globalization, most of these studies employed proxies like trade and capital flows or openness to these flows. Using these proxies, Beer and Boswell (2001) examined the consequences of globalization on inequality. Li and Reuveny (2003) analyzed their effects on democracy. As Heinemann (2000)
Axel Dreher§
First version: October 2002 This Version: January 2003
Abstract The paper presents an index of globalization covering its three main dimensions: economic integration, social integration, and political integration. Using panel data for 123 countries in 1970-2000 it is analyzed empirically whether the overall index of globalization as well as sub-indexes constructed to measure the single dimensions affect economic growth. The results show that globalization promotes growth – but not to an extent necessary to reduce poverty on a large scale. The dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries. Although less robustly, information flows also promote growth whereas political integration has no effect.
Keywords: Globalization, Growth JEL-Codes: H77, O57, F43 Acknowledgement: The author is grateful for helpful suggestions by Bernhard Boockmann, Quan Li, Verena Liessem, Fulvio Mulatero and Torsten Saadma. All errors are mine.
§ University of Mannheim, Lehrstuhl für Volkswirtschaftslehre, L7, 3-5, D-68131 Mannheim, Germany, e-mail: mail@axel-dreher.de
2
1. Introduction
Many non-economists expect the costs associated with globalization to exceed its benefits. Fears of an erosion of social and environmental standards, high poverty rates in less developed countries and ever higher frequencies of financial crisis resulted in protests like that in Seattle in 1999. Quite the contrary, most economists strongly believe the net effect of globalization to be positive. Apart from economic theory, this optimism is supported by empirical studies as well. To measure globalization, most of these studies employed proxies like trade and capital flows or openness to these flows. Using these proxies, Beer and Boswell (2001) examined the consequences of globalization on inequality. Li and Reuveny (2003) analyzed their effects on democracy. As Heinemann (2000)
References: Kearney/Foreign Policy Magazine (2002), foreignpolicy.com. 17 Brune, Nancy (2000), The Political Economy of Capital Account Liberalization, Working Paper, Midwest Political Science Association Annual Conference Raymond (2002), 19 Rappaport, Jordan (2000), How Does Openness to Capital Flows Affect Growth?, Federal Reserve Bank of Kansas City, mimeo 24 Table 4: Per Capita GDP Growth and Globalization (1970-2000) 25 Table 5: Per Capita GDP Growth and Economic Integration (1970-2000)