1. Chapter II Measures of Globalization

2. Globalization Definition: A process of ‘emergence of interdependent relationships among people from different parts of the world’ Put in simple terms, globalization refers to processes to promote interaction between people from different countries of national and cultural resources.

3. Importance of measuring globalization To know acceptability To explore the process of entering target country To mould policies, products and employees to suit the level of openness and customization ….

4. The list of trade indicators 4 Trade as % of GDP World Export Market Shares World Exp. Market Sh. by Type of Goods Import Penetration of G & S Merchandise Trade with the Rest of World Intra-Industry Trade Sensitivity of Trade flows to Price and Income Changes

5. Globalization Index Measurement of economic globalization focuses on variables such as trade, Foreign Direct Investment (FDI), portfolio investment One index of globalization is the KOF Index, which measures the three main dimensions of globalization: economic, social, and political 2010 List by the KOF Index of Globalization Rank: 1 Belgium 2Austria 3Netherlands 4Switzerland 5Sweden

6. KOF Index of globalization KOF Swiss Economic Institute of technology, Zurich Project Leader Prof. Dr. Axel Dreher Data are available on a yearly basis for 208 countries over the period 1970 - 20011. The KOF Index of Globalization measures the three main dimensions of globalization: economic social and political.

7. Top Globalised Countries Globalization Top 3: Ireland, Belgium, Netherlands, Austria, Singapore Economic: Singapore, Ireland, Luxembourg, Malta, Netherlands, Belgium

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9. KOF Index In addition to three indices measuring these dimensions, one calculate an overall index of globalization and sub-indices referring to actual economic flows http://globalization.kof.ethz.ch/query/ for self comparison of any or a group countries http://globalization.kof.ethz.ch/query/

10. KOF Index the three dimensions of the KOF index are defined as:  economic globalization- characterized as long distance flows of goods, capital and services as well as information and perceptions that accompany market exchanges ;  political globalization: characterized by a diffusion of government policies  social globalization: expressed as the spread of ideas, information, images and people.

11. economic globalization- Actual Flows Restriction

12. economic globalization-Actual Flows The sub-index on actual economic flows includes data on trade, FDI and portfolio investment. Data on trade are provided by the World Bank (2011), stocks of FDI (normalized by GDP) are provided by UNCTAD STAT (2011). Portfolio investment is derived from the IMF’s International Financial Statistics (December 2011).

13. economic globalization-Actual Flows Trade is the sum of a country’s exports and imports and portfolio investment is the sum of a country’s stock of assets and liabilities (all normalized by GDP). While these variables are straightforward, income payments to foreign nationals and capital are included to proxy for the extent that a country employs foreign people and capital in its production processes.

14. economic globalization- Restrictions: The second index refers to restrictions on trade and capital 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.

15. economic globalization- Restrictions To proxy restrictions of the capital account, an index based on data by Gwartney et al. (2012) is employed. This index is based on the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions and includes 13 different types of capital controls. The index is constructed by subtracting the number of restrictions from 13 and multiplying the result by 10.

16. economic globalization- Restrictions The indices on mean tariff rates and hidden import barriers are also derived from Gwartney et al. (2012). Mean tariff rates originate from various sources. Gwartney et al. allocated 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 will decline toward zero as the mean tariff rate approaches 50 percent (which is usually not exceeded by most countries among their sample). The original source for hidden import barriers, finally, is the World Economic Forum’s Global Competitiveness Report (various issues).

17. Method of Calculation In constructing the indices of globalization, each of the variables introduced above is transformed to an index on a scale of one to hundred, where hundred is the maximum value for a specific variable over the 1970-2010 period and one is the minimum value. Higher values denote greater globalization

18. 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.

19. Sources of Information: 1.Contacts This index is meant to capture direct interaction among people living in different countries. The first covers personal contacts, It includes international telecom traffic (traffic in minutes per person) and the degree of tourism (incoming and outgoing) a country’s population is exposed to.

20. 2. Data on information flows Government and workers’ transfers received and paid (in percent of GDP) measure whether and to what extent countries interact

21. 3. Cultural Proximity. while the stock of foreign population is included to capture existing interactions with people from other countries. The number of international letters sent and received also measure direct interaction among people living in different countries.

22. Cultural Proximity Imported and exported books (relative to GDP), as suggested in Kluver and Fu (2004). Traded books proxy the extent to which beliefs and values move across national borders, taken from the UNESCO (various years), and the United Nations Commodity Trade Statistics Database (2011).

23. Where to get information from: Telecom traffic is provided by the International Telecommunication Union (2011), while the number of letters is taken from the Universal Postal Union’s Postal Statistics Database. The remaining three variables are from the World Bank (2011, 2013)

24. Political Globalization To proxy the degree of political globalization we employ the number of embassies /high commissions in a country and, the number of international organizations to which the country is a member and the number of UN peace missions a country participated in.(w.e.f. 1945)

25. Data Collection These data are taken from: the Europa World Yearbook (various years), the CIA World Factbook (various years), the UN Department of Peacekeeping Operations, and the United Nations Treaties Collection.5.

26. How to make Index using above information: Step i: rate on scale 1-100 Club sub index into 1: taking weighted avg.. Principal component analysis.. Do the same to all 3 indices Take average of the 3 as indicator of globalization

29. Affects of Globalization In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge Further, environmental challenges such as climate change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with globalization Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.