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Being Close to Grow Faster: A Network-Based Empirical Analysis of Economic Globalization

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  • Georg Duernecker
  • Moritz Meyer
  • Fernando Vega Redondo

Abstract

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.

Suggested Citation

  • Georg Duernecker & Moritz Meyer & Fernando Vega Redondo, 2012. "Being Close to Grow Faster: A Network-Based Empirical Analysis of Economic Globalization," Economics Working Papers ECO2012/05, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2012/05
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    Cited by:

    1. Samuel Standaert & Stijn Ronsse & Benjamin Vandermarliere, 2014. "Historical trade integration: Globalization and the distance puzzle in the long 20th century," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/897, Ghent University, Faculty of Economics and Business Administration.
    2. Fagiolo, Giorgio & Santoni, Gianluca, 2015. "Human-mobility networks, country income, and labor productivity," Network Science, Cambridge University Press, vol. 3(03), pages 377-407, September.
    3. Ferrarini, Benno & Scaramozzino, Pasquale, 2013. "Complexity, Specialization, and Growth," ADB Economics Working Paper Series 344, Asian Development Bank.
    4. Ferrarini, Benno & Scaramozzino, Pasquale, 2016. "Production complexity, adaptability and economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 52-61.

    More about this item

    Keywords

    Economic Globalization; Growth Regressions; Dynamic Panel Estimation; Social Network Theory;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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