The term “Globalization” has been used extensively by media and academics in recent years. The term describers the process of creating networks of connections through a variety of flows of information, people, capital goods and technology.
In economics, globalization engages in various aspects of cross-border transactions, free international capital flows, foreign direct investment, portfolio investment, and rapid and widespread diffusion of technology.
Proponents of globalization argue that it enhances economic prosperity and leads to more efficient allocation of resources, which, in turn will result in higher output, more employment, lower prices and higher standard of living. However, some critics worry about the resulting outsourcing and offshoring, which have destroyed the American manufacturing sector.
To shed some light into the debate over the issues around globalization, this research project will explore the impacts of globalization on economic growth and employment. It will also look into the causal links between globalization and economic freedom and corruption.
Specifically, the first purpose of this study is to examine the impact of globalization on economic growth. A regression analysis will be conducted, using the growth rate of per capita GDP as dependent variable. The independent variable will be the index of globalization compiled by the Swiss Think Tank KOF. The index measures the three main dimensions of globalization: economic, social, and political.
Next, this study will investigate the relationship between globalization and economic freedom. It has been perceived that economic freedom promotes globalization. For the purpose of this study, the Index of Economic Freedom, prepared by the Heritage Foundation and the Wall Street Journal, will be used as independent variable. Using statistical data from organizations, such as the World Bank, International Monetary Fund and the Economist Intelligence Unit, the Index scores nations on the following ten factors of economic freedom: business, trade, fiscal, freedom from government, monetary, investment, financial, property rights, freedom from corruption, and labor. Some factors in the Index, such as business freedom, trade freedom and investment freedom are essential elements of globalization. It is, therefore, expected that economic freedom would be highly correlated with globalization.
Third, it has been established that corruption has an adverse impact on economic growth. This study will use the Corruption Perception Index (CPI), compiled by the Berlin-based organization Transparency International, to analyze the impact of corruption on globalization. Corruption is defined by the Transparency International as the abuse of the public office for private gain. The Index is used to measure the degree to which corruption is perceived to exist among a country’s public officials and politicians.