Journal of Economics and Financial Analysis, 2 (1), pp. 99-128, [2018]
URI: https://ojs.tripaledu.com/jefa/article/view/34/28

A Study on Regime Type and Globalization in Simultaneous Equation Framework


North-Eastern Hill University, India


DOI: http://dx.doi.org/10.1991/jefa.v2i1.a14

Abstract

In this study we build a simultaneous equation model in which the measures of different aspects of globalization (attributable to KOF) and different aspects of democracy (attributable to EIU) are related in seven structural equations. A bi-directional relationship between democracy and globalization is visualized. The model is estimated by the conventional 2-SLS as well as a modified 2-SLS in which Shapley value regression is used at the second stage of 2-SLS. On the basis of our analysis, we document several findings. First, we find that democracy and globalization promote each other and hence there is a bi-directional causality with positive relationships running both ways between democracy and globalization. At a national level, there may be various intermediary conditions that modify the relationship as well as set in motion a complex of positive and/or negative feedbacks to accelerate or retard the pace of globalization and democratization in a country-specific manner. However, when a large number of countries are studied, a clear relationship emerges out. Second, there is a need to estimate the structural coefficients of the model cautiously since the regression equations may be suffering from collinearity among the predictor variables. The Shapley value regression based 2-SLS has performed better than the conventional regression in estimating the structural parameters of the model. Third, the system methods of estimation of the model gives better results than what are obtained by the single equation methods of estimation of structural parameters of the model.

Keywords

Simultaneous equations model; Two-Stage Least Squares; Instrumental Variables; Collinearity; Shapley Value Regression; Democracy Index; Globalization Index.

JEL Classification

C30, C36, C51, C57, C61, C71, F63.

Full Text:

PDF
HTML

References

Acemoglu, D., and Robinson, J.A. (2006a). Economic Backwardness in Political Perspective. American Political Science Review, 100(1), 115-131.

Acemoglu, D., and Robinson, J.A. (2006b). Economic Origins of Dictatorship and Democracy. Cambridge, Mass: Cambridge University Press.

Dreher, A. (2006). Does Globalization Affect Growth? Evidence from a new Index of Globalization. Applied Economics, 38(10), 1091-1110.

Dreher, A., Gaston, N., and Martens, P. (2008). Measuring Globalisation: Gauging its Consequences. New York: Springer.

Eichengreen, B., and Leblang, D. (2006). Democracy and Globalization. NBER Working Paper, No. 12450. Cambridge, Mass: National Bureau of Economic Research.

Haffoudhi, H., and Bellakhal, R. (2016). Threshold Effect of Globalization on Democracy: The Role of Demography. SSRN: https://ssrn.com/abstract=2906308.

Hayek, F.A. (1960). The Constitution of Liberty. Chicago: University of Chicago Press.

Keynes, J.M. (1921). A Treatise on Probability. London: Macmillan.

Kollias, C., and Paleologou, S.M. (2016). Globalization and Democracy: A Disaggregated Analysis by Income Group. Global Economy Journal, 16(2), 213–228.

Li, Q., and Reuveny, R. (2003). Economic Globalization and Democracy: An Empirical Analysis. British Journal of Political Science, 33(1), 29-54.

Lipovetsky, S. (2006). Entropy Criterion in Logistic Regression and Shapley Value of Predictors. Journal of Modern Applied Statistical Methods, 5(1), 95-106.

Lipset, S.M. (1959). Some Social Requisites of Democracy: Economic Development and Political Legitimacy. American Political Science Review, 53(1), 69-105.

Milner, H.V. and Mukherjee, B. (2009). Democratization and Economic Globalization. Annual Review Political Science, 12, 163–81.

Mishra, S.K. (2013). Global Optimization of Some Difficult Benchmark Functions by Host-Parasite Coevolutionary Algorithm. Economics Bulletin, 33(1), 1-18.

Mishra, S.K. (2016). Shapley Value Regression and the Resolution of Multicollinearity. Journal of Economics Bibliography, 3(3), 498-515.

Mishra, S.K. (2017). Almost Equi-Marginal Principle based Composite Index of Globalization: China, India and Pakistan. Journal of Economic and Social Thought, 4(3), 335-351.

Nayyar, D. (1915). Globalization and Democracy. Brazilian Journal of Political Economy, 35 (3), 388-402.

Reiersol, O. (1945). Confluence Analysis by Means of Instrumental Sets of Variables. Arkiv for Mathematic, Astronomi, och Fysik. 32A. Uppsala: Almquist & Wiksells.

Roth, A.E. (1988). Introduction to the Shapley Value. In Roth, A.E. (ed. 1977). The Shapley Value: Essays in Honor of Lloyd S. Shapley. New York: Cambridge Univ. Press.

Rudra, N. (2005). Globalization and the Strengthening of Democracy in the Developing World. American Journal of Political Science, 49(4), 704-730.

Schumpter, J.A. (1950). Capitalism, Socialism and Democracy. New York: Harper & Row.

Schwartzman, K.C. (1998). Globalization and democracy. Annual Review of Sociology, 24(1), 159-81.

Smith, G., and Brainard, W. (1976). The Value of a priori Information in Estimating a Financial Model. Journal of Finance, 31(5), 1299-1322.

Sobhan, R. (2003). Globalization and the Challenge to Democracy. International Journal of Development Issues, 2(2), 1-14.

Stein, A.A. (2016). The Great Trilemma: Are Globalization, Democracy, and Sovereignty Compatible? International Theory, 8(2), 297-340.

Steiner, N.D. (2015). Essays on Globalization and Democracy. D. Phil dissertation, vorgelegt dem Fachbereich 02 – Sozialwissenschaften, Medien und Sport der Johannes Gutenberg Univ., Mainz. https://nilssteiner.com/wp-content/uploads/2017/01/Dissertation_Steiner_Introduction-only.pdf

Turyahikayo, E. (2014). The Impact of Globalization on Domestic Political Structures in Established, Transitional and Non-Democracies. Journal of Good Governance and Sustainable Development in Africa, 2(2), 94-109.




Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.