Globalization, Growth and Development

A Semester Paper on
ECO.607: GLOBALIZATION AND ECONOMIC REFORMS

Submitted to Central Department of Economics (CEDECON) for the

Internal Assessment of Partial Fulfillment of Master of Philosophy
(M.Phil. 2010 in Economics)

Submitted By
Bigyan Shrestha
Roll No. 21
August 2010
 Table of Contents
Introduction 1
Definition of Globalization 1
KOF Index of Globalization 2
Methodology 2
Result 3
Conclusion 4
References 5
Appendix 6

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 Globalization, Growth and Development

Introduction

It is generally accepted among economists that globalization and growth are positively related.
Globalization creates synergy effect among the economies and brings the positive outcome to the
participating economies. By bringing economies into one market place, globalization enhances
the productivity of economies by specialization, exposure, availability of new and improved
technology and global market place. This will help in rapid growth of the economies both
developed and developing countries.

Other school of thought argues that globalization spoils the low income countries due to
comparative disadvantage over the developed countries. The positive synergy effects are
transferred to developed countries only and globalization may even add the negative value to the
developing economies. Developing economies are more dependent on developed economies and
transfer of income and resources to developed nations. From number of empirical evidence, we
can find that the rapid growth of developing economies is possible only with the integration of
economy in the global market place. The openness and integration of China and Indian market
and the positive economic effect to these countries are good example of positive outcome of
globalization to developing nations.

This paper tries to identify whether there is any relationship among globalization, growth and
development of an economy. The widely used globalization measure “KOF Index of
Globalization” is used for measure of extent of globalization. Per Capita Income of the countries
are taken as the measure for growth. Though the increased per capita income may not represent
the actual growth of an economy, based upon the empirical results the high per capita income
countries are the high growth economies in past. The HDI index published by UNDP is taken as
level of development for the purpose of this study. The data for selected 163 countries are
analyzed for the year 2007.

This paper is confined to the analysis of association and linear relationship between variables.
The casuality among the variables are not covered.

Definition of Globalization

Globalization is the process through which economies in the world are interrelated. There is no
single definition of globalization. Caselli (2006) mentions three dimensions of globalisation

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mainly accepted in contemporary theory, namely economic, political and cultural, which may be
further divided into subdimensions. A definition of globalisation should reflect this
multidimensionality. Also, the fact that globalisation really does enfold the whole globe needs to
be stressed, as this is the distinguishing factor between globalisation and other forms of
international openness of countries. Exactly the intensity of contact in so many spheres with such
intensity at such large distances is the main feature of what we call globalisation today. Petra
Vujakovic remarks Globalisation is a process of growing interaction and interdependence
between economies, societies and nations across large distances.

Measure of Globalization – KOF Index of Globalization

Dreher (2006) sets out to describe globalization as a broad term, including many relevant aspects
that had previously only been researched separately (Andersen & Herbertsson, 2005). The KOF
index of globalization is created by Konjunkturforschungsstelle (KOF) of the Eidgenössische
Technische Hochschule in Zürich, Switzerland and is the result of the call for an encompassing
measurement tool. All information about definitions, calculations of rankings and papers on
which the index is based, and papers that use the index are documented. The paper has thus
developed an index of globalization covering aspects deemed most important:

1. Economic globalization, characterized as long distance flows of goods, capital and

services as well as information and perceptions that accompany market exchanges,

2. Political globalization, characterized by a diffusion of government policies and

3. Social globalization, expressed as the spread of ideas, information, images, and people.

Methodology

The countries are ranked in terms of globalization, gdp per capita and HDI index. The correlation
and association between these variables among the 163 selected nations were computed and
analyzed. Based upon the results obtained, the relationship between globalization, growth and
development is found out. The observed correlation or associations between two variables might
be due to the action of a third, unobserved variable. But as the association between events
becomes stronger, the probability that those events are also influenced by unknown factors
lessens. So this paper tries to validate different measures of association scores (Jaccard, Yule,
etc) as well as classical levels of correlation analysis (Pearson). The following five coefficients

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as measures of association are symmetric, it does not matter which variable is the independent
variable and which is the dependent variable.

Association refers to a wider variety of coefficients which measure strength of relationship,

defined various ways. In common usage association refers to measures of strength of relationship
in which at least one of the variables is a dichotomy, nominal, or ordinal.

The statistical coefficient Spearman rho is a non parametric statistic quantitative measures of
correlation based on ranking. It used to measure the degree of correspondence between two
rankings and assessing the significance of this correspondence. It measures the strength of
association of variables. The Spearman’s Rank correlation coefficient is given by:

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Result

The results of the analysis based on the data from appendix no.1, for the five association
measures are presented and described below for the year 2007

Yule Pearson Yule Jaccard Coincidence

Variable PC
Q Qc Y D coefficient
1688 1688
>58.58 67 14 81
GI 0.91 0.64 0.64 0.70 0.82
<58.58 15 67 82
82 81 163

HDI
>0.782 <0.782
>58.58 40 41 81
GI 0.06 0.03 0.03 0.34 0.50
<58.58 38 44 82
78 85 163

HDI
>0.782 <0.782
>1688 43 39 82
PC 0.18 0.09 0.09 0.37 0.54
<1688 35 46 81
78 85 163

PC
>4453.74 <4453.74
>65.97 35 15 50
GI 0.88 0.57 0.59 0.54 0.70
<65.97 15 98 113
50 113 163

HDI
>0.837 <0.837
>65.97 17 33 50 - -
GI 0.00 0.19 0.32
<65.97 39 74 113 0.01 0.01
56 107 163

HDI
>0.837 <0.837
>4453.
74 20 30 50
PC 0.18 0.08 0.09 0.23 0.38
<4453.
74 36 77 113
56 107 163

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Most coefficients of association vary from 0 (indicating no relationship) to 1 (indicating perfect
relationship) or _1 (indicating perfect negative relationship). However there are various types of
perfect relationship and various types of no relationship.

It can be seen from above table that the association between GI (Globalization Index) and Per
Capital Income (PCI) is positive and high as shown by all measure of association. So there is
strong association between these two factors. Increase in globalization are characterized by
increase in per capita income or increased per capita income helps in globalization of economy.
Above measures only gives association of variables but not a causation of the variables. Though
the association between GI and HDI is positive, the magnitude is very small so it is not the case
to say that GI and HDI are associated with each other. PC and HDI is also positively associated
but magnitude is lower.

For the year 2007 for selected countries, correlation matrix is given by:

GI PCI HDI
GI 1 0.7845 0.810999
PCI 1 0.917765
HDI 1
The variables are highly correlated. So the degree of linear relations among the variables are very
high.

Conclusion

The most of the association coefficient are positive. This shows that there is positive association
between the Globalization, Growth and Development. The GI and PCI are highly associated. As
this study only presents the association among variables and doesn’t present the casuality of the
variables, it cannot be said that which variables are dependent variable and which one is
independent variable. The association between GI and PCI can be interpreted as either high level
of Globalization may lead to increased Per capita income of an economy or the countries with
the increased per capita income are highly globalized. The correlation coefficient observed are
high enough to support that there is high linear correlation between GI, PCI and HDI. Hence,
highly globalized countries are those countries with high PCI and high HDI. Globalization,
Growth and Development have positive relationship.

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References

Axel Dreher, Does Globalization affect Growth

http://wikipedia.org

International Monetary Fund, World Economic Outlook Database, April 2010

Jongryn Mo, Globalization of Korean Society (GKS)

KOF Index of globalization measure data

Laimona Šliburytė1, Rūta Masteikienė1 Impacts of Globalization on Lituanian Economic

Growth

Petra Vujakovic,How to Measure Globalisation?

A New Globalisation Index (NGI)

S_voiu Gheorghe, Economic Freedom, Globalization, Corruption and Macroeconomic Results

Selected Readings, Focus on: Measuring globalization, December 2007

Tsvi Vinig and J. de Kluijver, Does Globalization Impact Entrepreneurship? Comparative Study
of Country Level Indicators

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Annexure 1
Globalization, Per Capital Income and Human Development Index of selected 163
countries.

Country GI Rank PCI Rank HDI Rank

Belgium 92.9454 1 22703.31 19 0.818 17
Austria 92.50916 2 23935.497 13 0.754 14
Netherlands 91.90448 3 24249.912 12 0.564 6
Switzerland 90.5505 4 34762.732 5 0.868 9
Sweden 89.75224 5 27651.745 9 0.866 7
Denmark 89.68149 6 30033.99 7 0.798 16
Canada 88.24252 7 23653.36 14 0.97 4
Portugal 87.53522 8 11081.909 31 0.955 31
Finland 87.31418 9 23561.049 15 0.787 12
Hungary 86.99969 10 4626.824 49 0.895 40
Ireland 86.91904 11 25561.519 10 0.543 5
Czech Republic 86.86968 12 5548.479 44 0.903 33
France 86.18382 13 22575.726 20 0.826 8
Luxembourg 85.83514 14 46360.39 1 0.953 11
Spain 85.71239 15 14464.242 25 0.772 15
Slovak Republic 85.06838 16 3788.078 60 0.492 39
Singapore 84.58212 17 23018.65 18 0.619 22
Germany 84.16237 18 23168.069 17 0.729 21
Australia 83.82306 19 20793.68 21 0.812 2
Norway 83.53265 20 37390.552 2 0.694 1
Cyprus 82.45435 21 13493.168 27 0.813 29
Italy 82.25985 22 19293.344 23 0.92 18
Poland 81.25799 23 4453.742 50 0.84 38
United Kingdom 80.17796 24 25142.251 11 0.389 20
New Zealand 79.56384 25 13708.731 26 0.394 19
Estonia 79.49471 26 4139.668 55 0.593 37
United States 78.79974 27 35251.927 4 0.523 13
Slovenia 78.77714 28 10045.002 33 0.966 26
Croatia 76.8485 29 4873.637 46 0.708 42
Malta 76.4167 30 10104.304 32 0.369 35
Greece 75.8287 31 11661.884 29 0.392 23
Bulgaria 75.41177 32 1546.082 83 0.878 56
Lithuania 74.73002 33 3267.379 66 0.772 43
Chile 73.73541 34 4943.706 45 0.807 41
Malaysia 73.69135 35 4029.677 56 0.576 59
Jordan 71.74228 36 1741.926 81 0.854 86
Latvia 71.61324 37 3294.828 65 0.871 45
Israel 71.58146 38 20504.105 22 0.914 25
Romania 71.51492 39 1688.308 82 0.903 57
Iceland 70.65633 40 30693.379 6 0.955 3
Bahrain 69.36658 41 11889.976 28 0.52 36
Russian Federation 68.91132 42 1793.519 80 0.814 63
Qatar 68.86892 43 29290.364 8 0.777 30

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Mauritius 68.28526 44 3864.513 58 0.806 72
Japan 68.16125 45 36800.436 3 0.747 10
Ukraine 68.1535 46 642.405 118 0.719 76
Panama 67.66371 47 3941.825 57 0.472 55
Costa Rica 66.50529 48 4185.329 54 0.883 49
El Salvador 66.25634 49 2399.39 69 0.414 96
Serbia 65.97083 50 1152.235 99 0.741 60
Lebanon 65.85861 51 4722.176 48 0.959 74
Uruguay 65.61947 52 6914.367 41 0.961 47
South Africa 65.59644 53 2986.447 67 0.755 117
Jamaica 64.91758 54 3472.366 62 0.456 90
Turkey 64.90723 55 4245.215 52 0.778 70
Korea, Rep. 64.73356 56 11346.663 30 0.947 24
Bosnia and
Herzegovina 64.67606 57 1506.756 88 0.526 67
Thailand 64.1304 58 1966.751 77 0.942 78
Moldova 63.98344 59 353.556 137 0.813 106
Peru 63.36684 60 2115.367 74 0.704 69
Honduras 62.73914 61 1105.721 100 0.435 101
China 62.68064 62 945.597 106 0.396 82
United Arab Emirates 62.43188 63 23446.149 16 0.729 32
Tunisia 62.12794 64 2035.72 75 0.532 88
Dominican Republic 61.4412 65 2982.437 68 0.732 81
Georgia 61.29407 66 685.891 114 0.879 80
Argentina 61.1835 67 7729.858 39 0.969 46
Mexico 60.91643 68 6419.102 43 0.612 48
Morocco 60.85131 69 1300.578 92 0.734 118
Kazakhstan 60.84055 70 1229.359 94 0.782 73
Saudi Arabia 60.64274 71 9216.391 36 0.965 54
Brazil 60.37846 72 3761.58 61 0.935 66
Oman 60.27836 73 8096.833 38 0.951 51
Guatemala 59.94096 74 1531.063 84 0.766 111
Colombia 59.92931 75 2335.39 70 0.96 68
Guyana 59.74266 76 1511.515 87 0.77 103
Grenada 59.33256 77 4253.26 51 0.804 65
Fiji 59.26091 78 2117.668 73 0.541 98
Kyrgyz Republic 58.96738 79 278.3 145 0.916 109
Trinidad and Tobago 58.63033 80 6461.292 42 0.937 58
Philippines 58.58496 81 986.557 104 0.71 95
Samoa 58.31692 82 1226.006 95 0.619 84
Indonesia 57.79542 83 806.898 109 0.866 100
Barbados 57.08723 84 9501.744 34 0.803 34
Paraguay 57.00069 85 1335.182 90 0.514 91
Ecuador 56.90693 86 1259.977 93 0.847 71
Namibia 56.83722 87 2139.665 72 0.87 116
Nicaragua 56.65824 88 779.311 112 0.96 112
Zambia 56.28968 89 310.325 142 0.493 148
Nigeria 55.88283 90 389.951 133 0.829 144

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Albania 55.63724 91 1190.133 98 0.771 62
Azerbaijan 55.17839 92 647.837 117 0.371 77
Armenia 54.98997 93 593.451 119 0.902 75
Antigua and Barbuda 54.64186 94 8870.808 37 0.52 44
Ghana 54.37608 95 270.627 146 0.804 138
Venezuela, RB 53.82375 96 4845.028 47 0.854 53
Bolivia 53.45626 97 998.101 103 0.72 102
Brunei Darussalam 53.35264 98 18476.85 24 0.727 27
Gabon 53.26794 99 4227.802 53 0.654 93
Belize 52.69705 100 3330.865 64 0.402 83
Pakistan 52.689 101 538.648 123 0.586 128
Sri Lanka 52.52593 102 914.656 107 0.686 92
Botswana 52.25764 103 3440.893 63 0.553 113
Mongolia 51.92034 104 455.634 125 0.964 104
Belarus 51.88371 105 1042.822 102 0.95 61
India 51.25674 106 443.044 127 0.699 122
Seychelles 50.34899 107 9246.253 35 0.34 52
Senegal 49.94726 108 453.777 126 0.511 150
Mozambique 49.90434 109 236.455 151 0.971 155
Cambodia 49.08027 110 288.125 144 0.846 124
Suriname 48.98223 111 2027.113 76 0.572 87
Gambia, The 48.42886 112 319.248 140 0.84 152
Kenya 48.24285 113 409.175 129 0.541 133
Algeria 48.19986 114 1800.011 79 0.761 94
Vanuatu 47.99533 115 1468.905 89 0.806 114
Syrian Arab Republic 47.93187 116 1215.19 97 0.751 97
Togo 47.89421 117 241.379 149 0.88 145
Vietnam 47.78274 118 401.567 130 0.909 105
Swaziland 47.31969 119 1527.675 85 0.91 129
Libya 47.01328 120 7204.416 40 0.837 50
Djibouti 46.90392 121 834.687 108 0.817 141
Papua New Guinea 46.08358 122 686.423 113 0.46 134
Mali 45.95807 123 240.132 150 0.771 160
Yemen, Rep. 45.80342 124 539.641 122 0.651 127
Dominica 45.80111 125 3801.793 59 0.843 64
Uganda 44.91332 126 254.882 147 0.464 143
Malawi 43.91039 127 153.332 160 0.826 146
Angola 43.40319 128 684.808 115 0.845 130
Cameroon 42.82211 129 655.49 116 0.365 139
Burkina Faso 42.62062 130 233.154 153 0.944 159
Maldives 42.32306 131 2167.54 71 0.88 85
Mauritania 42.25164 132 431.076 128 0.929 140
Benin 42.15921 133 330.361 139 0.61 147
Lesotho 41.57241 134 354.324 136 0.683 142
Chad 40.70956 135 185.761 156 0.955 158
Guinea 40.48174 136 390.112 132 0.759 153
Uzbekistan 40.26541 137 550.72 120 0.531 108
Bangladesh 39.74469 138 334.226 138 0.769 132

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Cape Verde 39.60044 139 1225.419 96 0.572 110
Sierra Leone 39.37919 140 134.51 161 0.963 162
Turkmenistan 38.67492 141 1081.653 101 0.96 99
Ethiopia 38.65886 142 120.578 162 0.742 154
Rwanda 37.78547 143 214.15 154 0.688 151
Tanzania 37.394 144 303.149 143 0.53 137
Nepal 37.22478 145 234.569 152 0.783 131
Iran, Islamic Rep. 36.921 146 1514.973 86 0.499 79
Guinea-Bissau 36.44726 147 356.225 135 0.768 156
Haiti 35.90407 148 523.346 124 0.837 135
Niger 34.81677 149 155.05 159 0.769 163
Sudan 34.77079 150 397.602 131 0.806 136
Tajikistan 34.50198 151 161.522 158 0.739 115
Burundi 34.34743 152 110.351 163 0.514 157
Central African
Republic 33.25878 153 246.727 148 0.796 161
Sao Tome and Principe 32.51569 154 547.411 121 0.903 119
Tonga 31.65295 155 1911.072 78 0.947 89
Comoros 30.66852 156 366.901 134 0.956 126
Bhutan 29.31231 157 782.541 110 0.865 120
Eritrea 28.92779 158 198.612 155 0.71 149
Lao PDR 28.11871 159 310.628 141 0.693 121
Equatorial Guinea 26.85366 160 1321.255 91 0.844 107
Solomon Islands 26.35216 161 983.079 105 0.725 123
Kiribati 25.45345 162 779.386 111 0.575 28
Myanmar 20.68532 163 177.64 157 0.481 125

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