Globalization, Real Output and Multiple Structural Breaks

This paper adopts an advanced panel cointegration method which incorporates multiple structural breaks to examine the long-run relationship between real output (RGDP) and the Konjunkturforschungsstelle (KOF) index of globalization (overall and its three main sub-indices), employing annual data of G7 countries from 1970 to 2006. Our empirical findings provide strong evidence that overall globalization and its social dimension are cointegrated with RGDP, and most of the structural break points are discovered during the period of the oil crisis (the mid-1970s) and the process of European Union integration. In addition, in evaluating whether or not the structural breaks affect the RGDP through globalization, we discover that both the overall globalization index and the social globalization index have a directly positive impact on RGDP but indirectly exhibit negative impacts on real output via the channel of social globalization.