How can globalization affect inflation? Example of EMU countries

Figures & data

Table 1. Sources of data.

Variable	Measure	Source
CPI	Inflation (%)	World Bank
EMU	EMU membership	European Commission
GDPG	GDP growth rate (%)	World Bank
KOFE	The economic dimension of globalization	ETH - Swiss Economic Institute
KOFS	The social dimension of globalization	ETH - Swiss Economic Institute
KOFP	The political dimension of globalization	ETH - Swiss Economic Institute

Table 2. Descriptive statistics.

Variable	Mean	Standard Deviation	Minimum	Maximum	Number of observations
Inflation	4.78	5.24	−4.48	31.02	728
Political globalization (KOFP)	81.19	16.01	31.78	98.71	728
Economic globalization (KOFE)	69.67	14.93	29.70	93.47	728
Social globalization (KOFS)	75.96	9.12	51.82	92.11	728
GDP growth	2.88	3.54	−11.33	25.16	728

Source: Author’s calculations in EViews 10.

Table 3. Cross-section dependence test.

Variable	t-statistic
Inflation (CPI)	53.46***
Political globalization (KOFP)	59.72***
Economic globalization (KOFE)	63.22***
Social globalization (KOFS)	66.69***
GDP growth (GDPG)	37.12***

***indicates rejection of the null hypothesis at a 1% level of significance.

Source: Author’s calculations in EViews 10.

Table 4. Im, Pesaran, and Shin unit root test results (CIPS).

Im, Pesaran, and Shin
Variable	Individual intercept	Individual intercept and trend	Decision
CPI	−3.63***	−3.78***	I(0)
KOFP	−2.16*	−2.39	I(1)
D(KOFP)	−6.19***	−6.42***
KOFE	−2.01	−2.12	I(1)
D(KOFE)	−6.03***	−6.26***
KOFS	−2.69***	−2.84***	I(0)
GDPG	−4.75***	−4.91***	I(0)

***indicates rejection of the null hypothesis at a 1% level of significance.

**indicate rejection of the null hypothesis at a 5% level of significance.

Source: Author’s calculations in Stata.

Table 5. Panel ARDL long-run results.

Dependent variable: CPI
Independent	Model	Model
Variable	(1)	(2)
KOFP	−0.15	−0.05
	(0.12)	(0.09)
	[-1.21]	[-0.49]
KOFE	−0.41***	−0.45***
	(0.10)	(0.08)
	[-3.88]	[-5.32]
KOFS	0.56***	−0.21
	(0.22)	(0.19)
	[2.64]	[-1.09]
GDPG	1.26***	0.89***
	(0.27)	(0.18)
	[4.74]	[4.98]
EMU		7.21***
		(1.13)
		[6.36]

Standard errors in () and t-statistics in [].

***statistically significant at a 1% level of significance.

**statistically significant at a 5% level of significance.

***statistically significant at a 10% level of significance.

Source: Author’s calculations in EViews 10.

Table 6. Panel ARDL short-run results.

Dependent variable: CPI
Independent	Model	Model
Variable	(1)	(2)
ECT	−0.20***	−0.25***
	(0.02)	(0.02)
	[-12.00]	[-13.74]
D(KOFP)	0.03	0.03
	(0.03)	(0.03)
	[0.86]	[1.06]
D(KOFE)	0.17***	0.23***
	(0.04)	(0.05)
	[4.48]	[4.96]
D(KOFS)	−0.13	−0.01
	(0.14)	(0.17)
	[-0.91]	[-0.09]
D(GDPG)	−0.14***	−0.13***
	(0.03)	(0.03)
	[-4.19]	[-3.96]
D(EMU)		−0.99***
		(0.57)
		[-1.74]
C	0.11***	11.90***
	(0.47)	(1.03)
	[0.23]	[11.61]
Trend	−0.01*	−0.01*
	(0.01)	(0.01)
	[-1.60]	[-1.50]

Standard errors in () and t-statistics in [].

***statistically significant at a 1% level of significance.

**statistically significant at a 5% level of significance.

*statistically significant at a 10% level of significance.

Source: Author’s calculations in EViews 10.

Figure A1. Consumer Price Index by EMU country, 1970-2021.

Source: Author in EViews 10.

Figure A2. GDP growth rate by EMU country, 1970-2021.

Source: Author in EViews 10.

Table A1. KOF globalization index and its dimensions.

Indices and variables	Weights
Economic globalization	37%
1.1. Actual Flows	50%
Trade (% of GDP)	18%
FDI flows (% of GDP)	21%
FDI stocks (% of GDP)	22%
Portfolio Investment (% of GDP)	19%
Income paid to foreign nationals (% of GDP)	20%
1.2. Restrictions	50%
Hidden import barriers	24%
Mean tariff rate	28%
Taxes on International trade (% of current revenue)	27%
Capital account restrictions	20%
Social globalization	39%
2.1. Data on personal contact	30%
Telephone traffic (% of GDP)	13%
Transfers (% of GDP)	6%
International tourism (% of the total population)	28%
Foreign population (% of the total population)	26%
International letters (per capita)	28%
2.2. Data on information flows	35%
Internet users (per 1000 people)	25%
Television (per 1000 people)	25%
Trade-in newspapers (% of GDP)	21%
Radio (per 1000 people)	29%
2.3. Data on cultural proximity	35%
Number of Mcdonald’s restaurants (per capita)	40%
Number of Ikea stores (per capita)	41%
Trade-in books (% of GDP)	19%
Political globalization	25%
Embassies in the country	35%
Membership in International organizations	36%
Participation in UN Security Council Mission	29%

Source: Pekarskiene, I. & Susniene, R. (2011), p. 62.

Table A2. EMU membership.

EMU country	Membership year
Austria	1999
Belgium	1999
Cyprus	2008
Germany	1999
Spain	1999
Finland	1999
France	1999
Greece	2001
Ireland	1999
Italy	1999
Luxembourg	1999
Malta	2008
Netherlands	1999
Portugal	1999

Source: European Commission (2020).

Table A3. Panel ARDL Long-Run Results – Robustness check (countries joined in 1999).

Independent variables	Dependent variable: CPI
	Model (1)	Model (2)
KOFP	−0.12	−0.02
	(0.14)	(0.09)
	[-0.82]	[-0.26]
KOFE	−0.53***	−0.52***
	(0.13)	(0.09)
	[-4.21]	[-5.85]
KOFS	0.53**	0.45**
	(0.26)	(0.21)
	[2.05]	[2.14]
GDPG	1.49***	0.89***
	(0.34)	(0.19)
	[4.41]	[4.63]
EMU		8.09***
		(1.23)
		[6.56]

Standard errors in () and t-statistics in [].

***statistically significant at a 1% level of significance.

**statistically significant at a 5% level of significance.

***statistically significant at a 10% level of significance.

Source: Author’s calculations in EViews 10.

Table A4. Panel ARDL short-run results – robustness check (countries joined in 1999).

Independent variables	Dependent variable: CPI
	Model (1)	Model (2)
ECT	−0.19***	−0.27***
	(0.02)	(0.02)
	[-9.24]	[-13.37]
D(KOFP)	0.02	0.02
	(0.03)	(0.04)
	[0.57]	[0.58]
D(KOFE)	0.24***	0.31***
	(0.03)	(0.04)
	[8.87]	[8.42]
D(KOFS)	−0.30	−0.21
	(0.09)	(0.08)
	[-3.18]	[-2.56]
D(GDPG)	−0.14***	−0.12***
	(0.02)	(0.01)
	[-7.67]	[-7.97]
D(EMU)	1.58***	−1.47***
	(0.42)	(0.16)
	[3.77]	[-8.39]
C	−0.01*	17.26***
	(0.01)	(1.08)
	[-0.002]	[15.93]
Trend		−0.04**
		(0.01)
		[-3.34]

Standard errors in () and t-statistics in [].

***statistically significant at a 1% level of significance.

**statistically significant at a 5% level of significance.

***statistically significant at a 10% level of significance.

Source: Author’s calculations in EViews 10.

Table A5. Panel dynamic least squares (DOLS) – Robustness check.

Independent variables	Dependent variable: CPI
	Model (1)	Model (2)
KOFP	−0.11	−0.12
	(0.07)	(0.07)
	[-1.48]	[-1.75]
KOFE	−0.14***	−0.12***
	(0.06)	(0.06)
	[-2.29]	[-1.89]
KOFS	0.23**	0.02**
	(0.11)	(0.12)
	[2.03]	[0.23]
GDPG	0.32***	0.22**
	(0.09)	(0.08)
	[3.56]	[2.74]
EMU		3.21***
		(0.88)
		[3.65]

Standard errors in () and t-statistics in [].

***statistically significant at a 1% level of significance.

**statistically significant at a 5% level of significance.

Pekarskiene, I., & Susniene, R. (2011). An assessment of the level of globalization in the Baltic States. Inžinerinė ekonomika, 22(1), 58–68.

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European Commission. (2020). European Neighbourhood Policy and Enlargement Negotiations (DG NEAR). https://neighbourhood-enlargement.ec.europa.eu/enlargement-policy/6-27-members_en

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