ECON 3506 : International Trade : Other Measures of Globalization
Are there other measures you could use?
What form of globalisation are you measuring?
2.Using 2 graphs (one for each country), plot openness versus time for each country. Explain in up to 50 words how openness has changed for these countries from 1985 to 2005. Make sure your graph is properly labelled.
3.Explain in the relationship between openness and economic development by calculating the correlation coefficient between GDP per capita (proxy for economic development) and openness for each of the two countries, respectively. [Here you have to use the CORREL command in Excel].
4.Explain in the factors that you think drive openness in these two countries. [Note that these factors can be positive or negative]. If you use information, reference it. References do not count in the word count.
Answer:
1. Openness as the measure of globalization:
One of the simplest measurement of the globalization is the ratio of trade value and the Gross Domestic Product (GDP) of a nation (Alam et al. 2016). Trade openness of an economy largely depends upon the trade policies as well as the economic and geographical characteristics of the same.
Other measures of globalization:
As the alternative measurement of the globalization, Structure Adjusted Trade Intensity is utilized so as to correct the result of the trade openness measurement relevant to the characteristics of the country (Martens et al. 2015). Apart from this, Gross Capital Flows which is the sum of the gross capital outflow and inflow is utilized to measure the globalization. Foreign Direct Investment and the Foreign Assets and Liabilities are good alternative measure of globalization.
Globalization measured here:
This report is utilizing the Trade and GDP ratio as the measurement of the globalization of the selected economy.
2: Change in the openness of the selected country:
Considering the figure 1 and Figure 2, it can be seen that openness of Singapore is higher than the Malaysia, however, during the same period Malaysia has comparatively higher growth in its trade openness. Highest rise in the openness can be observed since 1990 and for the Singapore it is late 1990s.
3. Relationship between openness and economic development:
Openness and economic development are interrelated with each other; if there is rise in the openness, then economic development will be higher and vis-à-vis (Menyah et al. 2014). Considering the table 1, it can be seen that correlation between the Malaysian GDP per capita and openness is higher than Singapore depicting higher growth of the economy during the same time period.
Table 1: Correlation between openness and economic development
Source: (Created by Author)
As per Hecksher-Ohlin suggests that same technological growth and factor intensity need to be same and under the better factor endowment trade openness can enhance the performance of the economy generating higher economic growth (Samargandi et al. 2015).
4. Factors that have driven the openness in these countries:
Malaysia and Singapore both showcased good amount of improvement during the recent decades under the developing relations with the western developed nations and the regional integration of the same. Considering the case of the Malaysia, it can be seen that governmental push on heavy industry and growth in the private investment from the foreign economy has influenced the capital formation in the domestic economy (Cheewatrakoopong and Boonprakaikawe 2015). Industrialization growth through the rise in the electronic industry, it can be seen that both the chosen economies has been facing good amount of growth in their export allowing it to have overall rise in the Gross Trade Flow. Singapore, though historically a deprived nations in terms of technological growth and investment flow, however, during the recent year, rise in the capital mobilization and breaching of the technological gap with the peer nations has converted it as one of the fastest growing economy in the Asian region. Recent governmental policies from the Malaysian and Singaporean governments so as to enhance the trade, has implemented export promotion programs that has enhanced the openness of the trade.
Reference:
Alam, M.S., Raza, S.A., Shahbaz, M. and Abbas, Q., 2016. Accounting for contribution of trade openness and foreign direct investment in life expectancy: The long-run and short-run analysis in Pakistan. Social Indicators Research, 129(3), pp.1155-1170.
Cheewatrakoolpong, K. and Boonprakaikawe, J., 2015. Factors Influencing Outward FDI: A Case Study of Thailand in Comparison with Singapore and Malaysia. Southeast Asian Journal of Economics, 3(2), pp.123-141.
Martens, P., Caselli, M., De Lombaerde, P., Figge, L. and Scholte, J.A., 2015. New directions in globalization indices. Globalizations, 12(2), pp.217-228.
Menyah, K., Nazlioglu, S. and Wolde-Rufael, Y., 2014. Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, pp.386-394.
Samargandi, N., Fidrmuc, J. and Ghosh, S., 2015. Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68, pp.66-81.
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