Critical Analysis of Globalization Indices

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* Article / Chapter: Measuring Globalization – Opening the Black Box. A Critical Analysis of Globalization Indices. By Axel Dreher, Noel Gaston et al. In: Globalistics and Globalization Studies. Edited by Leonid E. Grinin, Ilya V. Ilyin, et al. ‘Uchitel’ Publishing House, 2012

URL = http://www.sociostudies.org/books/files/globalistics_and_globalization_studies/129-147.pdf


Description

"Indices of globalization are employed in various ways. This paper discusses the measurement of globalization with a view to advancing the understanding of globalization indices. Our assessment is that a true understanding of globalization must be an interdisciplinary enterprise. Moreover, it would be fruitful if academics, both quantitative experts and theoreticians, can work together on this challenge. Despite the different methodologies, choice of variables and weights, in order to study and measure globalization meaningfully, new cooperative frameworks are needed."


Contents

"In what follows, we discuss two indices of globalization developed by two of the authors.

  • The Maastricht Globalization Index, or MGI, developed by Martens and Zywietz (2006), and Martens and Raza (2009) refers to a cross-section of 117 countries, while
  • the 2002 KOF Index of Globalization constructed in Dreher (2006) covers 122 countries for the period from 1970 to 2002.

We also present the most recent KOF index that is based on the 2002 KOF Index of Globalization, covering 158 countries. ... While the MGI and KOF indices are very similar in many respects, there are notable methodological differences."

... From a footnote:

"The best-known indices of globalization are the ATKearney/Foreign Policy globalization index, which we abbreviate as ‘ATK/FP’; the Maastricht Globalization Index, the ‘MGI’; the World Market Research Centre G-index; and the KOF index of globalization produced by the KOF Swiss Economic Institute. The latter index is extensively used in academic analysis. Dreher et al. (2008: 75–78) list 36 journal articles published between 2003 and 2008 that employ the KOF index in statistical analyses. Some of the material in this section is drawn from Dreher et al. (2008); readers requiring greater detail are referred there."


Discussion

Can we Really Measure Globalization?

By Axel Dreher, Noel Gaston et al. :

"As we have discussed, the measurement of globalization should try to include the essential features of contemporary globalization. However, when we think about a possible methodology, we face a greater problem which applies to existing indices of globalization – classic or modified. Even if we could manage to find suitable supra-territorial indicators and indicators that portray cultural and other complex global features, how could such measures fit in with the rest of the existing measures, since the end result is still country-based? This dead end in the measurement of globalization is well described by Caselli (2006).

Given this situation, it is paradoxical and misconceived to insist on studying reality in general, and globalization all the more so, with instruments that take the nation-state as their unit of analysis. It is at most possible to study internationalization in this way, but not globalization. In other words, the globalization measures currently available are vitiated by what has been variously called methodological nationalism (Beck 2004), embedded statism (Sassen 2000), or methodological territorialism (Scholte 2000) – a perspective which distorts the essence of globalization precisely when its study begins, and which yields data that ‘in the best of cases are irrelevant and in the worse misleading, or even false’ (BeckGernsheim 2004, as cited by Caselli 2006: 20). Those features of globalization that are essentially new to us are those which are most difficult to measure by means of data collection and index construction. If the current epistemological basis of measuring globalization is so theoretically unsatisfactory and empirically problematic, we need to question why we should pursue the construction and maintenance of globalization indices which may be too narrow to understand globalization. A possible solution to these issues is to assess globalization by thematic order. For example, we can measure how globalized our worldwide politics are. Bauman's (1998) idea of a new class division between the globalized upper classes and the localised lower classes may also be promising. This leads to the proposal to measure globalization along individual lines, or along the lines of demographic groups. We could also measure the amount of supra-territorial institutions, both formal and informal. However, once again the problem rises of fitting in these trans-border results with a country-based index.


Is the Measurement of Globalization a Dead End?

The measurement of globalization contains so many pitfalls that it is tempting to retreat to purely qualitative analyses. However, this would burn the fragile bridge between the qualitative and quantitative analysis of globalization. The qualitative side of research generally focuses on a multi-dimensional analysis of globalization, by constructing frameworks and concepts through which to understand it. This provides some tools, but not a solid scientific footing which can fully comprehend the entire phenomenon of globalization. It is simply theory without measurement; running the risk of unsubstantiated and unscientific speculation. The quantitative side of research assesses the state of play about globalization using data, statistics and indices. While this approach runs the risk of oversimplification and may take on an overly enthusiastic air of truth, its transparent use of the available data is its ultimate salvation. There is a possibility to bridge the gap between theory and measurement. Composite indices of globalization can provide the meeting place or forum for both approaches. Composite indices need matters to be conceptually analyzed and continually reformulated. Instead of rejecting the possibility of measuring globalization adequately, the measurement of globalization needs to be, and can be, improved upon. A new mode of thinking, such as supra-territoriality, can trigger new ideas on both the analysis and quantification of globalization. The confrontation with new questions on the essential nature of globalization needs to be an interdisciplinary co-operation. It would be fruitful for academics from the quantitative side (modeling, conclusive statements, certainty and proofs) and qualitative side (analysis, discussion, conceptual revision, background and textual form) to sit together and work on the challenges. Despite the different methodologies, choice of variables and weights, and so on, they need to recognize that in order to study globalization concisely, new co-operative frameworks are needed.

Sociologists, critics of science and technology and economists need to work on dimensions of the same questions. For instance, an interdisciplinary review of science and technology analyses different lines of approach and formulates conceptual criticism to technical problems. It provides an overview of possible solutions and elaborates upon quantitative issues. Rather than handing over responsibility from discipline to discipline, what is required is tackling collectively the measurement of globalization. In this case, the whole is greater than the sum of the individual parts. The study and ultimate understanding of globalization requires academics and professionals alike to step outside their own narrow disciplinary boundaries."

(http://www.sociostudies.org/books/files/globalistics_and_globalization_studies/129-147.pdf)


Excerpts

By Axel Dreher, Noel Gaston et al. :

Components of the MGI

"Reflecting the need for a balance between broad coverage, data availability and quality motivated the following choice of indicators, with data for 117 countries.

  • Global Politics: First among the indicators of political integration are the diplomatic relations that constitute a historical basis for communication between countries. Logically, the more important are the links to the outside world, the more diplomatic links will be established by countries to stay informed, protect their interests and facilitate communication. Since no aggregated statistics on diplomatic relations are available at the global level, the number of in-country embassies and high commissions listed in the Europe World Yearbook are used. The data are available for nearly all countries world-wide, but are corrected for country size, since very small countries can rarely afford the expense of maintaining multiple embassies and often accredit one representative for several countries. Membership in international organisations is a similar measure of the extensity of the international relations and involvement of a country. Moreover, since such memberships do not necessarily entail the need to maintain expensive representations abroad, this measure is less dependent on country size.
  • Organised Violence: This indicator measures the involvement of a country's militaryindustrial complex with the rest of the world. While the quality of the data is low, they nevertheless offer an insight into weapons proliferation, international military aid and the reasons and results of international peace-keeping operations. As this dimension has not previously appeared in other globalization indices, no comparison is possible with those indices. Of the quantitative military indicators proposed by Held et al. (1999), trade in conventional arms, compiled by the Stockholm International Peace Research Institute (SIPRI), is the only variable available for a reasonable number of countries. To make the data internationally comparable, a country's trade in conventional arms is related to its military expenditure. Since a large share of the trade is in ‘big-ticket’ items and programmes that are approved and recorded in one year may actually take several years to deliver and service, a moving three-year average is used. The period is arbitrary but offers a reasonable compromise between data availability and the need to smooth the data for infrequent, large purchases.
  • Global Trade: Like other globalization indices, trade intensity is included as a measure of the intensity of economic globalization. Trade intensity is the sum of a country's exports and imports of goods and services as a share of GDP. The data in this domain have been documented thoroughly over an extended period, in many cases extending back to the nineteenth century. Trade in services has brought new challenges to the statistical process, as it is far easier to value goods physically crossing border checkpoints than, for example, data processing or telecommunications, or even outsourced management consultancy services. Nevertheless, the data are widely available and generally reliable.
  • Global Finance: Foreign direct investment (FDI), representing financial enmeshment, is the primary indicator. Gross FDI, used here, is the sum of the absolute values of inflows and outflows of FDI recorded in the balance of payments financial accounts. It includes equity capital, reinvestment of earnings, as well as other long-term and short-term capital. This indicator differs from the standard measure of FDI, which captures only inward investment. For the measurement of globalization, however, the direction of the flow is less important than the volume. FDI is the long-term involvement of a foreign firm in a country and has cascading effects throughout an entire economy. It exposes local companies to foreign technical innovations, management styles, techniques as well as increased competition. Because of these long-term effects and the high volatility of the flows in the face of changing economic conditions, a trailing three-year average instead of single-year figures is used. The second measure of financial interdependence used is gross private capital flows (as a percentage of GDP). This is the sum of the absolute values of direct, portfolio and other investment inflows and outflows recorded in the balance of payments financial accounts, excluding changes in the assets and liabilities of monetary authorities and the government. It measures the wider involvement of international capital in an economy and complements the FDI data. Once again, trailing three-year averages are employed.
  • People on the Move: This measure encapsulates migration and the international linkages that come with the movement of populations between different countries. Newly arrived immigrants often maintain close connections to their home countries based on family ties and cultural similarities, often sending money home to their relatives and economic dependents. While a detailed analysis of migrant stocks and flows, specified by type and reason of migration would certainly be instructive, again only limited data are available on a global scale. As immigration and naturalisation policies vary widely internationally and illegal immigration is widespread, the share of foreign-born residents of a given country has to suffice as a measure of the intensity of this increasingly controversial dimension of globalization. Tourism brings people in contact with each other. It changes attitudes and promotes understanding between cultures that would otherwise have little contact. As a major economic activity, it can bring prosperity to regions with no resources other than the natural beauty of the surroundings or the cultural value of historic sites. Tourism has grown steadily in the last century, the major impetus being cheaper air travel. It represents an important part of globalization and is therefore included in the index. The World Tourism Organisation, the source of the data, provides the sum of international inbound and outbound tourists, that is, the number of visitors who travel to a country other than their usual residence for a period not exceeding twelve months and whose main purpose in visiting is not employment related.
  • Technology: Although strongly related to GDP (with a Pearson correlation coefficient of 0.88), the share of a country's population that uses the internet still adds detail to the picture of the intensity of the technological aspect of globalization. Whether informing the international community about human rights abuses in reclusive countries or giving farmers access to commodity prices on the world's exchanges, as a global medium that transmits information cheaply over large distances it is an important factor. The second component, international telephone traffic (again measuring intensity), can be used with fewer reservations, as the technology is older and therefore more widespread and less dependent on a country's income. International telephone traffic is defined as the sum of incoming and outgoing phone calls for a country, measured in minutes per capita (the original data are from the International Telecommunication Union). The
  • Environment: Overlooked by existing indices are environmental indicators, that is, measures of the intensity of globalization in the ecological domain. Held et al. (1999: 376378) investigate global environmental degradation and the corresponding political and societal responses. These responses, however, are very difficult to track on a country-by-country basis. A more promising approach is to measure international linkages in terms of trade of goods that have a strong environmental impact, if not a high monetary one. Trade in software, for example, will generally have a far smaller impact on the environment than trade in tropical hardwoods, hazardous waste or water-intensive agricultural products.

Ecological footprint data offer a summary for many of these components since production and trade of these kinds of goods are included in a single measure. An ecological deficit (a footprint greater than the bio-capacity) indicates that a country must either ‘import space’ from somewhere (or stop ‘exporting’ it) or face rapid ecological degradation. Similarly, an ecological surplus offers opportunities to ‘export space’ by trade in space-intensive goods and services. The World Wide Fund for Nature's (WWF) Living Planet Reports provide ecological footprint and bio-capacity data in several categories (cropland, grazing land, forest, fishing grounds, energy lands and built-up land) and aggregate them into a single index, the ecological deficit. While a country with neither an ecological deficit nor surplus could be either completely autarchic or a major trader, by definition there is less dependence on outside linkages. A higher ranking according to this indicator therefore denotes more involvement with the outside world and, accordingly, a more globalized country along this dimension."

(http://www.sociostudies.org/books/files/globalistics_and_globalization_studies/129-147.pdf)


The KOF Index

"The KOF globalization index was first published in 2002 (Dreher 2006). It covers a large number of countries and has a long time span. The KOF Index also adds neglected dimensions of globalization. The 2002 KOF Index covers 123 countries and includes 23 variables. The overall index covers the economic, social and political dimensions of globalization. Globalization is conceptualised as the process of creating networks among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital and goods. It is a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex relations of mutual interdependence. More specifically, the three dimensions of globalization are defined as: economic globalization, characterised by the long distance flows of goods, capital and services as well as information and perceptions that accompany market exchanges; political globalization, characterised by the diffusion of government policies; and social globalization, expressed as the spread of ideas, information, images and people.

  • Economic Globalization: Economic globalization has two dimensions. First, actual economic flows are usually taken to be measures of globalization. Second, the previous literature employs proxies for restrictions on trade and capital. Consequently, two indices are constructed which include individual components suggested as proxies for globalization.

Actual flows: The sub-index on actual economic flows includes data on trade, FDI and portfolio investment. Trade is defined as the sum of a country's exports and imports and portfolio investment is the sum of a country's assets and liabilities; each measure is normalised by GDP. Included are the sum of gross inflows and outflows of FDI (again, normalised by GDP). While these variables are straightforward, income payments to foreign nationals and capital are also included to proxy for the extent to which a country employs foreign people and capital in its production processes.

International Trade and Investment Restrictions: The second sub-index refers to restrictions on trade and capital flows using hidden import barriers, mean tariff rates, taxes on international trade (as a share of current revenue) and an index of capital controls. Given a certain level of trade, a country with higher revenues from tariffs is less globalized. To proxy restrictions on the capital account, an index constructed by Gwartney and Lawson (2002) is employed. Mean tariff rates are obtained from various sources. Gwartney and Lawson allocate a rating of 10 to countries that do not impose any tariffs. As the mean tariff rate increases, countries are assigned lower ratings. The rating declines toward zero as the mean tariff rate approaches 50 % (a threshold not generally exceeded by most countries in their sample). The original source for hidden import barriers is various issues of the World Economic Forum's Global Competitiveness Report, based on the survey question ‘Hidden import barriers – no barriers other than published tariffs and quotas [are used]’.

  • Social Globalization: The KOF Index classifies social globalization in three categories. The first covers personal contacts, the second includes data on information flows and the third measures cultural proximity. Personal Contacts: This index is intended to capture the direct interaction among people living in different countries. It includes international telecom traffic (outgoing traffic in minutes per subscriber), the average cost of a call to the United States and the degree of tourism (incoming and outgoing) a country's population is exposed to. Government and workers' transfers received and paid (as a percentage of GDP) measure whether and to what extent countries interact, while the stock of foreign population is included to capture existing interactions with people from other countries. Information Flows: While personal contact data are meant to capture measurable interactions among people from different countries, the sub-index on information flows is meant to measure the potential flow of ideas and images. It includes the number of internet hosts and users, cable television subscribers, number of telephone mainlines, number of radios (all per 1,000 people) and daily newspapers (per 1,000 people). To some extent, all these variables proxy the potential for receiving news from other countries and thus contribute to the global spread of ideas.
  • Cultural Proximity: Cultural proximity is arguably the dimension of globalization most difficult to grasp. According to Saich (2000: 209), cultural globalization to a large degree refers to the domination of U.S. cultural products. Arguably, the United States is the trend-setter in much of the global socio-cultural realm (Rosendorff 2000: 111). As proxy for cultural proximity, the number of McDonald's restaurants located in a country is included. For many people, the global spread of McDonald's is synonymous with globalization itself.
  • Political Globalization: To proxy the degree of political globalization, the number of embassies and high commissions in a country, the number of international organisations in which the country is a member and the number of UN peace missions a country participated in are used."

(http://www.sociostudies.org/books/files/globalistics_and_globalization_studies/129-147.pdf)

More information

  • on the MGI, including its related publications, can be found on www.globalizationindex.info;

References

Kearney, A. T. / Foreign Policy. 2002. Globalization Index. Washington, D.C.: Carnegie Endowment for International Peace.

Kearney, A. T. 2007. Globalization Index. Washington, D.C.: Carnegie Endowment for International Peace.

Caselli, M. 2006. On the Nature of Globalization and its Measurement. UNU-CRIS Occasional Papers. Milano: Università Cattolica del Sacro Cuore. URL: http://www.cris. unu.edu/admin/documents/20060220113557.O-2006-3.pdf

Dreher, A., Gaston, N. et al. 2008. Measuring Globalization: Gauging its Consequences. New York: Springer.

Kluver, R., and Fu, W. 2004. The Cultural Globalization Index. Foreign Policy Online Web Exclusive. URL: http://www.foreignpolicy.com/story/cms.php?story_ id=2494

Lockwood, B. 2004. How Robust is the Kearney / Foreign Policy Globalization Index? The World Economy 27: 507–524.

Martens, P., and Raza, M. 2009. Globalization in the 21st Century: Measuring Regional Changes in Multiple Domains. The Integrated Assessment Journal 9(1): 1–18.

Martens, P., and Zywietz, D. 2006. Rethinking Globalization: A Modified Globalization Index. Journal of International Development 18: 331–350.

Randolph, J. 2001. G-Index: Globalization Measured. URL: http://www.wmrc.com/

Rennen, W., and Martens, P. 2003. The Globalization Timeline. Integrated Assessment 4(3): 137–144.

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