Globalisation effect measure via hierarchical dynamic factor modelling

Abstract

In this paper the issue of globalisation and deteriorating precision of domestically oriented frameworks is addressed. A hypothesis that the effect of international trends on the growth of economy is increasing over time is formed. In order to validate this, a method of composing foreign series with local indicators in a hierarchical dynamic factor model is presented. The novelty of this approach is that globalisation effect is measured focusing on prediction rather than similarity. This way the measure presents the country's sensitivity to global shocks and reveals how much focal country's economy is intertwined with global economy. The application was performed on the basis of Lithuanian data and the hypothesis was validated. The results indicate that globalisation effect has an increasing effect over time.

Globalization Versus Slowbalization: A Perspective on the Indian Economy

“…Measuring the prediction-based globalization effect can explain the responsiveness of a country to global innovations. An attempt like this has been made by Reklaite (2015) suggesting a globalization measure for Lithuania, which reflects the portion of economic growth explained by foreign indicators has been increasing over time. In doing so, she uses the dynamic hierarchical factor model to estimate the factor loadings of domestic and foreign factors and using the resultant in a dynamic linear model setting.…”

Dynamics of globalization effect in India

“…The obtained factor induced domestic factor loading, and foreign factor loading is further regressed on the future growth of the economy. Globalization effect can be measured by examining the magnitude of the foreign effect on the growth of the economy (Reklaite, 2015). Going ahead, the study examines the dynamics of this effect and evaluates the pace of globalization over time.…”