Measuring Globalisation Petra Vujakovic Joint Vienna Insitutute Measuring Globalisation A New Globalisation Index (NGI)

Introduction

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

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.

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)

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?

Methodology

Innovations in the NGI 5 new variables Introduction of distances Dimensions of globalisation generated through a statistical process (PCA)

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

Innovations in the NGI 5 new variables Introduction of geographical distances Dimensions of globalisation generated through a statistical process (PCA)

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 57 India 65 Japan 68 53 USA 70 56  EU regional trade

Innovations in the NGI 5 new variables Introduction of geographical distances Dimensions of globalisation generated through a statistical process (PCA)

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 ...

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

Results

Top 10 (1) Year 2005 Small countries still in the top 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

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 Switzerland 3 14 5 Netherlands 9 20 Belgium 4 10 Malta 6 29 Cyprus 56 Iceland 7 47 13 United Kingdom 8 19 Austria 12 16 Sweden 17

Contributions of individual dimensions differ across countries

Comparison of NGI with KOF Index results

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 Netherlands 4 Belgium -3 Malta 5 22 17 Cyprus 16 10 Iceland 32 25 United Kingdom 8 24 Austria 9 -7 Sweden -4

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 -4 France 15 -3 Germany 17 20 3 New Zealand 21 18 Spain 22 14 -8 Australia 23 26 Italy 27 25 -2 USA 32 35 Japan 59 50 -9

New Europe Generally lower positions than in KOF Index Country NGI KOF Difference Malta 5 22 17 Cyprus 6 16 10 Estonia 14 13 -1 Slovakia 21 Czech Rep. 28 9 -19 Hungary 29 11 -18 Bulgaria 36 Poland 38 27 -11 Slovenia 40 -23 Latvia 47 34 -13 Lithuania 60 -32 Rumania 64 37 -27 Generally lower positions than in KOF Index smaller countries corrected for country size lower scores in international financial stocks and new variables

BRIC‘s 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 57 -6

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?

Thank you for your attention!