BEING CLOSE TO GROW FASTER : A NETWORK-BASED EMPIRICAL ANALYSIS OF ECONOMIC GLOBALIZATION

Globalization features one of the major global trends which shape economic outcomes in developing and developed countries. Standard results from the empirical growth literature suggest that participation in worldwide trade is an important determinant of economic growth. In contrast to previous findings, this paper argues that not only the level of openness matters (trade intensity), but the degree of integration of an economy into the global trade network is even more important for the growth performance of an economy. The new measure of integration captures the network position of an economy and takes into consideration higher order links between economies in the global trade network. First, the theoretical framework of this paper makes use of social network theory to characterize a measure of economic integration. We employ the well-established concept of centrality and construct alternative measures to describe patterns of economic globalization. Second, we make use of a unique data set constructed from the UN Comtrade database and exploit a wide set of bilateral import and export flows to characterize the country’s participation in worldwide trade. Third, the identification strategy takes into account the dynamic panel structure of our data to disentangle the impact of economic integration on economic growth. Our results build on the difference and system generalized method of moments and the limited information maximum likelihood method. We take into consideration possible problems of endogeneity and lagged variables in the dynamic panel framework. The empirical analysis highlights the importance of openness and especially integration to fully understand the economic growth performance in a between and within country perspective. Controlling for the standard set of independent variables in the empirical growth literature and using different robustness checks, we find a significantly positive effect of integration on economic growth.

[1]  David L. Dollar.  Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985 , 1992, Economic Development and Cultural Change.

[2]  Christopher F. Baum,et al.  How to do Xtabond2: An Introduction to Difference and System GMM in Stata , 2006 .

[3]  Steven N. Durlauf,et al.  Multiple regimes and cross‐country growth behaviour , 1995 .

[4]  A. Heshmati.  Measurement of a Multidimensional Index of Globalization , 2006 .

[5]  C. I. Jones,et al.  Why Do Some Countries Produce so Much More Output Per Worker than Others? , 1998 .

[6]  Naoto Kunitomo,et al.  Evaluation of the Distribution Function of the Limited Information Maximum Likelihood Estimator , 1982 .

[7]  S. Edwards.  Openness, Productivity and Growth: What Do We Really Know? , 1997 .

[8]  James E. Rauch.  Business and Social Networks in International Trade , 2001 .

[9]  N. Islam.  Growth Empirics: A Panel Data Approach—A Reply , 1998 .

[10]  F. Windmeijer.  A Finite Sample Correction for the Variance of Linear Two-Step GMM Estimators , 2000 .

[11]  Javier Reyes,et al.  The architecture of globalization: a network approach to international economic integration , 2006 .

[12]  Decio Coviello,et al.  Weak Instruments and Weak Identification in Estimating the Effects of Education on Democracy , 2006 .

[13]  Enrique Moral-Benito.  Determinants of Economic Growth: A Bayesian Panel Data Approach , 2009 .

[14]  W. Newey,et al.  Estimating vector autoregressions with panel data , 1988 .

[15]  J. Coleman,et al.  Social Capital in the Creation of Human Capital , 1988, American Journal of Sociology.

[16]  X. Sala-i-Martin,et al.  Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach , 2000 .

[17]  Francisco Perez,et al.  Measuring Globalization of International Trade: Theory and Evidence , 2009 .

[18]  G. Fagiolo,et al.  The evolution of the world trade web: a weighted-network analysis , 2008 .

[19]  J. Sachs,et al.  Economic Reform and the Process of Global Integration , 1995 .

[20]  W. Baumol.  Productivity Growth, Convergence, and Welfare: What the Long-run Data Show , 1985 .

[21]  David L. Dollar,et al.  Institutions, Trade, and Growth: Revisiting the Evidence , 2003 .

[22]  T. W. Anderson.  Origins of the limited information maximum likelihood and two-stage least squares estimators , 2005 .

[23]  T. W. Anderson,et al.  The Asymptotic Properties of Estimates of the Parameters of a Single Equation in a Complete System of Stochastic Equations , 1950 .

[24]  R. Barro,et al.  A New Data Set of Educational Attainment in the World, 1950-2010 , 2010 .

[25]  Marko Terviö,et al.  Does Trade Raise Income? Evidence from the Twentieth Century , 2000 .

[26]  Marcelo Soto,et al.  Growth and human capital: good data, good results , 2001 .

[27]  R. Lucas.  On the Mechanics of Economic Development , 1988 .

[28]  Charles W. Calomiris.  Lessons from the Tequila Crisis for successful financial liberalization , 1999 .

[29]  James D. Feyrer,et al.  Trade and Income -- Exploiting Time Series in Geography , 2009 .

[30]  M. Nerlove,et al.  Biases in dynamic models with fixed effects , 1988 .

[31]  Bernhard Herz,et al.  Does Globalization Affect Growth ? Evidence from a new Index of Globalization , 2005 .

[32]  Ram D. Singh.  Government-introduced price distortions and growth: Evidence from twenty-nine developing countries , 1992 .

[33]  P. Romer.  Increasing Returns and Long-Run Growth , 1986, Journal of Political Economy.

[34]  Trade Liberalisation and Economic Performance: An Overview , 2004 .

[35]  Faezeh Ghazi.  Corruption and Growth , 2014 .

[36]  W. Brock,et al.  Growth empirics and reality , 2001 .

[37]  M. Arellano,et al.  Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations , 1991 .

[38]  Danny Quah,et al.  Empirical cross-section dynamics in economic growth , 1993 .

[39]  Frederic S. Mishkin.  Lessons from the Tequila Crisis , 1999 .

[40]  R. Blundell,et al.  Initial Conditions and Moment Restrictions in Dynamic Panel Data Models , 1998 .

[41]  R. Solow.  A Contribution to the Theory of Economic Growth , 1956 .

[42]  M. Mobius,et al.  Trust and Social Collateral , 2007 .

[43]  Marek Jarocinski,et al.  Determinants of Economic Growth : Will Data Tell ? † , 2008 .

[44]  Naoto Kunitomo,et al.  On the Asymptotic Optimality of the LIML Estimator with Possibly Many Instruments , 2010 .

[45]  T. W. Anderson,et al.  Estimation of the Parameters of a Single Equation in a Complete System of Stochastic Equations , 1949 .

[46]  John Romalis.  NAFTA's and CUSFTA's Impact on International Trade , 2005, The Review of Economics and Statistics.

[47]  Paul A. Bekker,et al.  ALTERNATIVE APPROXIMATIONS TO THE DISTRIBUTIONS OF INSTRUMENTAL VARIABLE ESTIMATORS , 1994 .

[48]  Lawrence H. Summers,et al.  Equipment Investment and Economic Growth: Reply , 1994 .

[49]  David Cass,et al.  Optimum Growth in an Aggregative Model of Capital Accumulation , 1965 .

[50]  James A. Robinson,et al.  The Colonial Origins of Comparative Development: An Empirical Investigation , 2000 .

[51]  J. Sargan.  THE ESTIMATION OF ECONOMIC RELATIONSHIPS USING INSTRUMENTAL VARIABLES , 1958 .

[52]  M. Arellano,et al.  Another look at the instrumental variable estimation of error-components models , 1995 .

[53]  Enrique Moral-Benito,et al.  Panel growth regressions with general predetermined variables: Likelihood-based estimation and bayesian averaging , 2010 .

[54]  Ann E. Harrison,et al.  Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries , 1995 .

[55]  P. Martens,et al.  Rethinking globalization: a modified globalization index , 2006 .

[56]  William Easterly,et al.  The Lost Decades: Developing Countries' Stagnation in Spite of Policy Reform 1980–1998 , 2001 .

[57]  Francesco Caselli,et al.  Reopening the convergence debate: A new look at cross-country growth empirics , 1996 .