3.3A - Measuring the Degree of Globalisation
Degree of globalisation varies by country and can be measured using indicators and indices. (AT Kearney Index, KOF index)
An indicator is a measure of an individual aspect (of globalisation), e.g. the amount of FDI.
Indices express indicators as a percentage - either of the highest actual total or of the maximum possible total.
They may be expresses as whole numbers out of a maximum 100, or as a decimal fraction (in 1/100ths) out of a maximum 1.0.
Indices may be composite measures, combining several indicators.
- Each component indicator is expressed as a percentage.
- Component index values can then simply be added and the mean value calculated to give the overall index value.
Alternatively, component index values might be scaled (weighted).
- Each component multiplied by a fraction of 1.0 and then the components are added.
KOF Index of Globalisation
- Produced annually by the Swiss Institute for Business Cycle Research
- KOF = konjunkturforschungsstelle
- It's a composite index combining 24 indicators spread across three categories:
- Economic globalisation
- Measured by indicators like cross-border trade, FDI, tariff rates and money flows.
- Social globalisation
- Measured by international telephone calls, tourist flows, resident foreign population and access to foreign internet, households with a TV set, and 'global affinity' (presence of international TNC retail outlets), international mail, import and exports of books.
- Political globalisation
- Measured by: foreign embassies in a country, membership of international organisations, number of UN Peacekeeping missions participated in, trade and other agreements with foreign countries.
- Economic globalisation
Each indicator is converted into an index value. Where data is missing, the most recently available data is substituted.
- Scaled average calculated to give a separate index value for each country.
- Mean of three category indices calculated to give the overall globalisation index.
- 2015's data is available for 207 countries.
- Index calculated since 1970 (158 countries 1970-2006)
- This allows comparisons over time.
- Economic globalisation has risen faster than political or social since 1970.
Developed countries top the list, with emerging countries mid-way and developing at the bottom. Positive correlation between globalisation and development?
In 2016, the Netherlands and Ireland topped the list, then Austria, Switzerland. There were only two non-European countries in the top 15, Singapore and Canada.
Small European countries top the list. This is because:
- The USA and BRICs have lower index values because the KOF index measures international interactions - internal flows between diverse regions in large countries (each the size of a small country) are not recorded. Large parts of the interior of the USA are not well connected to the rest of the world.
- Small countries have short distances to neighbouring countries, fewer domestic attractions and a smaller domestic market.
- High European indicator value reflects the very large interactions within the EU. Suggests the decision to join a trade bloc effective in promoting globalisation.
Many of the most globalised countries have culturally mixed populations, many residents living abroad and foreigners living in their country.
But:
- Technological developments mean that some indicators look dated, e.g. international mail, given the rise of email and social media, and trade of books given ebooks.
- Trade flows will not include informal economy flows. Will understate degree of globalisation in developing and emerging countries.
- Choice and weighting of indicators is value of judgement, and may contain cultural bias (e.g. no. of McDonald's restaurants)
- Fewer missing or estimated data is increasing accuracy and comparability.
- Large number of indicators incorporates wide range of international connections.
AT Kearney
- Produced annually by the AT Kearney management consulting firm in conjunction with Carnegie Endowment for International Peace's 'Foreign Policy' magazine.
- It uses 12 indicators spread across 4 categories:
- Economic integration
- Trade and FDI flows
- Technological connectivity
- Number of internet users, internet hosts and secure servers.
- Political engagement
- Membership of international organisations and treaties, contribution to UN peacekeeping, level of governmental transfers (e.g. aid)
- Personal contact
- International travel and tourism, international telephone traffic, personal cross border financial transfers (e.g. remittances)
- Economic integration
Index value calculated for each indicator based on its relative position on the scale - with the highest actual value scoring 1.0 and the lowest 0.
FDI, internet usage and international traffic telephone weighted double.
Overall index value calculated.
But:
- Only includes 62 countries, though these include 84% of the world's population and 96% of global GDP.
- First published in 2008.
- Small European countries dominate the top 20, though the USA is 4th and Canada is 6th. Smaller countries have higher FDI indicators due to small domestic markets.
- Heavy weighting given to ICT connectivity enables the USA to gain a high index score despite low political engagement in terms of treaties signed.
There is also an AT Kearney Global Cities Index, which measures how economically successful cities are.
In 2016, London, New York, Paris, Tokyo and Hong Kong were ranked as the most successful global cities.