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

This study builds a simultaneous equation model that establishes inter-connections 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. It has been found that the modified 2-SLS outperforms the conventional 2-SLS. Empirically, it has been established that globalization, democracy, human development and low level of corruption are reinforcing each other and they together explain social progress quite well.