Driving Factors of Globalization: An Empirical Analysis of the Developed and Developing Countries

Headnote

Abstract

There are several economic, political, social and technological factors that have contributed to globalization in recent decades. The literature has yet to come up with a comprehensive analytical framework. Present study develops a formal framework, which highlights the sources of globalization. Furthermore, the study also provides an empirical test for driving factors of globalization in developed and developing countries. Results of dynamic ordinary least square show human capital, capital, labor, transportation and communication and financial index as the important drivers of globalization in both developed countries and full sample. However, capital, labor and financial index appear to determine the process of globalization in developing countries. For robustness of the results, Generalized Method of Moments (GMM) is also applied; the results in full panel and developing countries are similar. However, efficiency index appears to be significant. In the panel of developed countries human capital, transportation and communication and financial index are significant.

Key words: Globalization, human capital, efficiency index, financial index, GMM

(ProQuest: ... denotes formulae omitted.)

1.Introduction

Economies around the world are becoming strongly integrated. The process of this integration is not new, as historical data suggests that the very first wave of globalization in the modern era occurred in 1870 (Mishkin, 2006). However, the interdependence and interconnectivity has been increasing over the past few decades. Multi-dimensional integration among countries around the world is a result of globalization in which socio-cultural, political and economic relations are established across a geographic distance. World has witnessed increase in the flows of trade, investment, capital and information during the process of integration. Mobility of individuals across the globe has also increased. Globalization not only increases economic and financial interdependencies among countries but it also integrates the social and political aspects.

The current shape and pace of globalization is driven by several factors. Broadly speaking, economic, financial, political, technological and social factors have paved the way to globalization. Economic factors mainly include lower trade and investment barriers. Expansion of financial sector is also considered an important force of globalization. Integration and unification of financial markets around the globe through financial liberalization and deregulation has increased the mutual dependencies of the economies. According to Stiglitz and Greenwald (2003), capital account liberalization is elimination of rigid rule and regulations...