GLOBALIZATION and REAL GDP: NEW EVIDENCE USING PANEL VECTOR AUTOREGRESSION

The existence and the direction of the relationship between globalization and real GDP (RGDP) are very debatable. By employing annual data of 92 countries from 1970 to 2011, we apply Pedroni's [Econometric Theory, 20, (2004) 597-625] panel cointegration test and the panel vector autoregressions (VARs) model, proposed by Love and Zicchino [Quarterly Review of Economics and Finance, 46(2), (2006) 190-210], to investigate again the relationship between these two variables. The results first present the weak evidence of cointegration between RGDP and overall globalization and its three main sub-indices. Second, the empirical evidence shows a bidirectional causality between RGDP and overall globalization, economic as well as social, but higher political globalization harms RGDP in the sample countries. Hence, we offer evidence for a clear bidirectional effect between RGDP and each globalization index in Organization for Economic Cooperation and Development (OECD) countries, but not in non-OECD ones. Several empirical implications and suggestions are proposed through our observations.