Impact of Economic Globalization on Growth in Baltic States

Many non-economists expect the costs associated with globalization to exceed its benefits - fears of an erosion of social and environmental standards, high poverty rates in less developed countries and ever higher frequencies of financial crisis. Quite the contrary, most economists strongly believe the effect of globalization to be positive. Apart from economic theory, this optimism is supported by a number of empirical studies as well. To measure globalization, most of these studies employed proxies like trade and capital flows or openness to these flows. For example, using these proxies, L. Beer and T. Boswell1 and J.S. Mah2 examined the consequences of globalization on inequality. Q. Li and R. Reuven3 analysed their effects on democracy. As F. Heineman shows, more globalized countries have lower increases in government outlays and taxes.4 The effects of globalization on growth have also been frequently analysed with these measures. For example, A. Chanda uses an index of capital account openness to show that more developing countries have suffered from globalization.5 On the contrary, D. Rodrik found no effect of capital account openness on economic growth.6 With respect to foreign direct investment (FDI) there is evidence of a positive growth-effect in countries which are sufficiently rich and a negative one in low income countries.7 Among others, there is also analysed the relationship between economic performance and openness to trade, as well as between growth and actual trade flows.8 Results show that both openness to trade and actual flows are robustly related to growth.9 D.Dollar and A.Kraay found that an increase in trade flows and foreign direct investment resulted in higher growth rates.10 Other authors also report a strong relationship between trade and growth.11 …