A Simultaneous Equation Model of Globalization, Corruption, Democracy, Human Development and Social Progress

Abstract

This study builds a simultaneous equation model that establishes interconnections among the measures of globalization, measures of democracy, human development, corruption perception index and per capita income, which in turn jointly influence social progress. The model has eleven equations in which the response variables and the predictor variables are log-linearly related. The empirical data used for estimation of the model pertain to the period 2006-2016 for 116 countries distributed over all the continents. The model has been estimated by the conventional Two-Stage Least Squares (2-SLS) and alternatively by a modified 2-SLS in which, at the second stage, Shapley value regression has been used to ameliorate the detrimental effects of collinearity among the predictor variables. The modified 2-SLS outperforms the conventional 2-SLS. The study finds that globalization positively influences and is influenced by democracy, human development and social capital. Globalization reduces corrupt practices and integrity promotes globalization. Democracy, social capital, human development and globalization affect social progress positively. It has also been found that trans-border personal connection, cultural proximity, democracy and social capital are elastic with respect to their predictors.

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