Growth effects of a comprehensive measure of globalization with country-specific time series data

Abstract

Many studies have estimated the growth effects of globalization where globalization was measured with a few economic variables, ignoring its social and political dimensions. Recently, Dreher (2006 Dreher, A. 2006. Does globalization affect growth? Empirical evidence from a new index of globalization. Applied Economics, 38: 1091–110. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) has developed a comprehensive measure of globalization with several variables from the economic, political and social sectors. He showed, with the panel data methods, that globalization has positive growth effect implying that countries with higher globalization grow faster. We argue that 5-year average growth rates, used in many panel data studies, are inadequate proxies for the unobservable Steady State Growth Rate (SSGR). Using the Dreher indices, we extend the Solow (1956 Solow, R. 1956. A contribution to the theory of economic growth. Quarterly Journal of Economics, 70: 65–94. [Crossref], [Web of Science ®] , [Google Scholar]) model to derive country-specific estimates of SSGRs for Singapore, Malaysia, Thailand, India and the Philippines. Our results show that countries with higher levels of globalization have higher SSGRs but the growth effects on SSGRs are smaller than in many studies.