Did Globalisation Influence Credit Market Deregulation?

Abstract

We investigate whether globalisation influenced credit market deregulation over the period 1970–2010. Globalisation is measured by the KOF indices of globalisation. Credit market deregulation is measured by the credit market freedom indicators of the Fraser Institute. The results from both cross‐sectional and panel regressions using ordinary least squares indicate a positive correlation between globalisation and credit market deregulation. We account for reverse causality using predicted trade openness as an instrumental variable and show that this approach gives rise to different conclusions. Two‐stage least squares estimations do not show that globalisation had a causal influence on credit market deregulation.

Globalization and Climate Change: New Empirical Panel Data Evidence

“…Robust t ‐statistics for FE estimates and z ‐statistic for 2SLS estimates reported in parenthesis (standard errors clustered by country). Instrumental Variable: Lag predicted trade openness (Felbermayr and Gröschl, ) and (Eppinger and Potrafde, ).…”

“…Instrumental Variable: Lag predicted trade openness (Felbermayr and Gröschl, ) and (Eppinger and Potrafde, ).…”

“…The 2SLS estimation results are presented on the right side of Table (columns 10–18), which take the one‐period lag of the predicted trade openness as an instrumental variable following Eppinger and Potrafke (). In the first stage, the IV has a significant effect on globalization across our panel with an F ‐statistic above Stock and Yogo's () 20% critical value.…”

“…Since the globalization index may be endogenous in the FE estimation, the instrumental variable method is adopted to tackle this issue. Following Felbermayr and Gröschl (2013) and Eppinger and Potrafke (2016), we use the exogenous component of trade openness predicted by geography and natural disasters as an IV for globalization variables in our model. Frankel and Rose (2005) have attempted to isolate the effects that trade has independent of income by means of a gravity model 3 by first considering the relationship between pollution and income.…”

“…Since the globalization index may be endogenous in the FE estimation, the instrumental variable method is adopted to tackle this issue. Following Felbermayr and Gröschl () and Eppinger and Potrafke (), we use the exogenous component of trade openness predicted by geography and natural disasters as an IV for globalization variables in our model.…”