Academic journal article Journal of Competitiveness Studies

Exploring the Influence of Globalization and Democracy/freedom on Emerging Markets Trade

Academic journal article Journal of Competitiveness Studies

Exploring the Influence of Globalization and Democracy/freedom on Emerging Markets Trade

Article excerpt

ABSTRACT

This empirical study explores the trade growth in 25 emerging markets during the past 25 years (1990-2014). During this period, their total GDP and trade grew 8 and 12 times, respectively. Full, reduced, and factor analytic models are used to determine the influence of globalization, economic freedom, political rights, civil liberties, total GDP, manufacturing, primary energy consumption, life expectancy, population, higher education, urbanization, and an economically active female labor force on trade. Full model uses all twelve variables described above as independent variables. Reduced model uses only four variables, viz., globalization, economic freedom, political rights, and civil liberties. Factor analytic model uses the four extracted factors, viz., globalization, openness and freedom, size of the market, quality of life, and contribution of manufacturing in GDP. Globalization indicates a positive influence on trade in correlation and regression analysis but reveals a negative relationship in the factor analytic model. Political rights show a negative relationship with trade in all models. The low freedom scores of the top trade performers like China, Iran, Russia, Thailand, and Vietnam may have contributed to the negative relationship. This study advances some direction in exploring trade growth in emerging markets.

Keywords: Trade, Determinants of Trade, Emerging Markets, Industrialization, Democracy, Freedom, Economic Freedom and Globalization.

INTRODUCTION

Why nations trade or what factors determine the trade between nations is a very old question in international economics. Classic textbook trade theories include Mercantilism, Adam Smith's absolute advantage, Ricardo's comparative advantage, and Heckscher-Ohlin's factor endowment theory. More modern and newer explanations added to the literature are Raymond Vernon's international product life cycle (Vernon, 1966), Porter's double diamond (Porter, 1990), country similarity, and the gravity model. Additionally, there are a wide variety of hybrid models that are a mixture of some of the above postulations.

Most trade theories and explanations in the literature have traditionally focused on developed and sometimes developing countries. Emerging markets as a group have not been investigated, although they have been making headlines lately. A good portion of their economic success emanates from the trade growth that has taken place during past 25 years or so. The economic growth can be attributed to, inter alia, globalization and freedom/democracy that the world and the emerging markets has experienced during this period (Bhagwati, 1999; Dawson, 2003; Decker & Lim, 2009; Eichengreen & Leblang, 2006; Haan & Sturm, 2001). The famous advertisement slogan of Merrill Lynch in 2000, "the world is ten years old," after the fall of the Berlin Wall, in a way underscores the importance of lately achieved freedoms in the world.

This is an empirical work. The purpose of this study is to explore the recent growth and pattern of trade in emerging markets. In addition to the descriptive analysis, the study aims at determining the influence of globalization, freedom, and various social and economic variables affecting trade at the macro level. Correlation, regression, and factor analytic models are used for the purpose. Hopefully, the findings of the study will shed some light in understanding the influence of globalization and freedom on trade in emerging markets.

A brief literature review and an elaboration of the study model follow this section. Then the methodology section describes sampling and data collection issues. It is followed by findings, implications, and the conclusion.

BACKGROUND LITERATURE

The gravity model and various country-specific hybrid models are the basis for a study like this. There are a variety of gravity models available in the literature. Each study has its own assumptions, postulations, and empirical substantiations applied in various countries and country-groups. …

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