Measuring Globalisation

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Measuring Globalisation
Petra Vujakovic Joint Vienna Insitutute

• A New Globalisation Index (NGI)

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Introduction
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Why measure globalisation?

• Quantify a very contended phenomenon and allow
  objective quantitative analysis
• Identify/quantify sources and impacts
• Analysis and deeper understanding of the process
• Analysis over time and across regions
• Investigate links to other indicators poverty,
  inequality, growth
• If you can not measure it, you can not improve
  it.
• Lord Kelvin

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Defining Globalisation

• Varied discussions in literature, no clear and
  commonly accepted definition.
• The process of growing interdependence of
• economies, societies and nations
• across large distances.

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Globalisation Indices - Overview

• G-Index (World Markets Research Centre)
• A.T. Kearney / Foreign Policy Globalization Index
• KOF Globalization Index (ETH Zürich)
• GlobalIndex (Transeurope-Project)
• CSGR Globalisation Index (Warwick University)
• Maastricht Globalization Index (Universiteit
  Maastricht)

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Innovations in the NGI

• 5 new variables
• Introduction of distances
• International trade in goods weighted with
  geographical distances ? globalisation vs.
  regional integration
• Dimensions of globalisation generated through a
  statistical process
• Search for indicators based on a priori defined
  theoretical spheres of globalisation
• Grouping the indicators together with help of PCA
  new dimensions or a confirmation of the
  theoretical ones?

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Methodology
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Innovations in the NGI

• 5 new variables
• Introduction of distances
• Dimensions of globalisation generated through a
  statistical process (PCA)

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5 New Indicators

• Portfolio stock
• Trademark applications by non-residents
• Patent applications by non-residents
• Outgoing students
• International environmental agreements
• --------------------------------------------------
  ---------------------
• 21 variables in NGI
• Hard data
• Output data
• Countries 70
• Years 1995-2005

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Innovations in the NGI

• 5 new variables
• Introduction of geographical distances
• Dimensions of globalisation generated through a
  statistical process (PCA)

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Geographical Distances

• Bilateral trade in goods data (/GDP) weighted
  with geographical distance between countries
  (CEPII database)
• Example movements in rankings
• Downward
• Stagnating
• Upward

COUNTRY BEFORE AFTER
Germany 32 42 ?
Austria 20 54 ?
Denmark 35 58 ?

Turkey 44 46 ?
Russia 49 48 ?
UK 58 57 ?

India 65 35 ?
Japan 68 53 ?
USA 70 56 ?
? EU regional trade
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Innovations in the NGI

• 5 new variables
• Introduction of geographical distances
• Dimensions of globalisation generated through a
  statistical process (PCA)

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Building of the Dimensions (PCA) (1)

• Extraction of factors with maximal variance
• Individual factors independent
• The principal components are linear combination
  of original data
• Variables load to different factors, following
  the correlation structure of the variable set
• ...

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Building the Dimensions (PCA)

• Extraction of 3 factors
• After rotation, individual variables load largely
  to one of the 3 factors

(1) FINANCE (2) TRADE POLITICS (3) SOCIAL
FDI stock trade in goods trade in services
FDI flow trademarks migration
portfolio stock patents tourism
portfolio flow transfers telephone
income payments env. agreements books
internet int. organizations newspapers
embassies outgoing students
peacekeeping
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Results
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Top 10 (1)

• Year 2005

RANK COUNTRY
1 Ireland
2 Switzerland
3 Netherlands
4 Belgium
5 Malta
6 Cyprus
7 Iceland
8 United Kingdom
9 Austria
10 Sweden

• Small countries still in the top
• Exclusively european club
• 6 old EU countries
• new EU (Malta, Cyprus)
• EEA Iceland Switzerland

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Top 10 (2)

• Year 2005

• Financial positions correlate highly with the
  final results
• All in top 15
• Developed EU
• Top 20 in all 3 subindices
• newer and non-EU have lower rankings in
  trade/pol subindex
• Ireland, Malta, Cyprus and Iceland not in top 20
• High positions due to financial flows and social
  interconnectedness

COUNTRY Rank FIN TRADE POL SOC
Ireland 1 2 39 2
Switzerland 2 3 14 5
Netherlands 3 1 9 20
Belgium 4 5 2 10
Malta 5 6 29 4
Cyprus 6 14 56 1
Iceland 7 4 47 13
United Kingdom 8 9 4 19
Austria 9 12 16 6
Sweden 10 7 13 17
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Contributions of individual dimensions differ
across countries

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Comparison of NGI with KOF Index results
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Top 10

• 6 same countries in top 10
• Island countries move forward - Malta, Cyprus,
  Iceland and UK
• Islands have no direct neighbours
• New variables show international integration
  (Trademarks, Patents, Environmental Agreements)

Country NGI KOF Difference
Ireland 1 7 6
Switzerland 2 3 1
Netherlands 3 4 1
Belgium 4 1 -3
Malta 5 22 17
Cyprus 6 16 10
Iceland 7 32 25
United Kingdom 8 24 16
Austria 9 2 -7
Sweden 10 6 -4
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Big Developed Countries

• No significant changes
• UK upwards politics and financial stocks
• Spain and Japan downwards restrictions
  variable, double counting
• Low ranking of Japan social indicators very
  low

Country NGI KOF Abweichung
United Kingdom 8 24 16
Canada 12 8 -4
France 15 12 -3
Germany 17 20 3
New Zealand 21 18 -3
Spain 22 14 -8
Australia 23 26 3
Italy 27 25 -2
USA 32 35 3
Japan 59 50 -9
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New Europe

• Generally lower positions than in KOF Index
• smaller countries corrected for country size
• lower scores in international financial stocks
  and new variables

Country NGI KOF Difference
Malta 5 22 17
Cyprus 6 16 10
Estonia 14 13 -1
Slovakia 16 21 5
Czech Rep. 28 9 -19
Hungary 29 11 -18
Bulgaria 36 36 0
Poland 38 27 -11
Slovenia 40 17 -23
Latvia 47 34 -13
Lithuania 60 28 -32
Rumania 64 37 -27
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BRICs

• Generally better positions than in KOF Index
• Asian giants move strongly upwards
• Bigger countries corrected for country size
• Distant trading partners

Country NGI KOF Difference
China 42 63 21
Russia 46 48 2
India 52 68 16
Brazil 63 57 -6
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Main issues and Possible Applications of the Index

• New Globalisation Index (NGI) introduces some new
  perspectives to the measurement of globalisation
• Important issue globalisation vs regional
  integration
• Geographical distances prove to be an important
  aspect in quantifying globalisation
• Intra-EU relations bias the results towards the
  EU countries
• Lack of bilateral data is a constraint for many
  variables
• Globalisation IS a multidimensional phenomenon
• --------------------------------------------------
  ----------------------
• Links to other indicators
• Development, economic growth, inequality?

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Thank you for your attention!