Repository | Book | Chapter

The main purpose of this chapter is to analyze the theoretical relationship between globalization and institutional quality and the empirical analysis of this linking in developing countries. For this aim, this chapter seeks to answer three main questions: (1) How do institutions affect globalization (trade openness)? (2) Can the economic globalization and trade openness cause institutional changes? If the answer is positive, does globalization lead to an improvement in the institutional quality or its deterioration? (3) Is there any causal relationship between globalization and institutional quality in developing countries?To answer these questions, we use analytical-descriptive methods and econometric methods including Granger-type causality test based on panel vector error correction model (PVECM).The theoretical findings of this chapter show that the good institutional quality via various channels affects the volume, structure, and composition of the trade. Also, economic globalization may improve (or deteriorate) the quality of institutions, but the kind and the extent of its influence depend on the type of institutional system and institutional structure of countries.The descriptive analysis of data (status of globalization and institutional quality) in developing countries showed that the trend of economic globalization is not favorable in comparison with the world trend. In addition, compared to both three dimensions of globalization and the world as a whole, it presents an unfavorable situation. On the other hand, the position of institutional quality, in particular the quality of regulation and the effectiveness of governments (of the vital factors of trade expansion), has the worst situation. The results of Granger-type causality test showed that there is no causal relationship between economic globalization and legal-economic institutions (such as the rule of law and government effectiveness) in the short term, but there is at least one causal relationship in the long run. This relationship with the index of the rule of law is bidirectional and with other indexes is unidirectional. Also, the findings of this study show that in the short and long run, political globalization is the cause of political institutions (political stability and voice) and social globalization is the cause of social institutions. Therefore, the globalization view of institutional change can be cautiously supported.

DOI: 10.1007/978-3-030-14370-1_6

Full citation: