Globalization, Democracy and Economic Growth in Developing Countries: A Panel Causality Analysis

Samia Nasreen and Muhammad Shahbaz

International Journal of Economics and Empirical Research (IJEER), 2016, vol. 4, issue 9, 465-482

Abstract: Purpose: This paper investigates the relationship between globalization, democracy and economic growth of 52 developing countries. Methodology: For this purpose, we have applied fully modified OLS (FMOLS), pooled mean group (PMG) cointegration techniques and the VECM method to a non-stationary heterogeneous dynamic panel over the period 1980-2010. For empirical analysis, we have used the composite indicator of globalization and two different indicators of democracy. We also highlighted the importance of simultaneous adoption of democracy and globalization for developing countries. Findings: The empirical results strongly support the long-run relationship between economic growth, democracy and globalization. The VECM Granger causality analysis reveals the evidence of bidirectional causality between economic growth and globalization. Causal relationship between democracy and economic growth depends on the indicators used to measure democracy. The results further explain that globalization adds in economic growth and democracy impedes economic growth. Recommendations: This suggests that negative impact of democracy on economic growth can be minimized by improving organizational structure of democratic institution in developing countries.

Keywords: Globalization; Democracy; Economic Growth (search for similar items in EconPapers)
JEL-codes: F01 (search for similar items in EconPapers)
Date: 2016
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