Globalization Index 2003

How the Index Is Calculated

The Globalization Index brings globalization into sharper focus by assessing changes in its most important components, whether engagement in international relations and policymaking, trade and financial flows, or the movement of people, ideas, and information across borders. The index tracks these changes across 62 advanced economies and key emerging markets to draw a picture of globalization across all the worlds regions.

The index quantifies economic integration by combining data on trade, foreign direct investment (FDI) and portfolio capital flows, and income payments and receipts, which includes compensation of nonresident employees and income earned and paid on assets held abroad. It charts personal contact via levels of international travel and tourism, international telephone traffic, and cross-border transfers, including remittances. The index also gauges technological connectedness by counting Internet users and the Internet hosts and secure servers through which they communicate and conduct business transactions. And it also assesses political engagement by taking stock of the number of international organizations and U.N. Security Council missions in which each country participates, as well as the number of foreign embassies that each country hosts.

For most variables, each years inward and outward flows are added, and the sum is divided by the countrys nominal economic output or, where appropriate, its population. Political engagement figures are treated differently, with participation in U.N. Security Council missions divided by the total number of missions active in each year and embassies and international organizations remaining as absolute numbers. This process produces panels of data that enable comparisons between countries of all sizes.

The resulting data panels for a given variable are then compared and normalized through a process that values the single lowest data point at zero and the highest at one, while assigning relative values between zero and one to the remaining data points in the panel. Suppose the variable is trade. The maximum value of inward and outward trade flows is 341 percent of gross domestic product (GDP) recorded for Singapore in 1995, while the minimum is 15.3 percent of GDP for Brazil in 1996. These data points are valued at one and zero, respectively, with all others falling in between.

Country scores are summed across the panels, with double weighting on FDI and portfolio capital flows due to their particular importance in the ebb and flow of globalization. Internet indicators and political indicators are collapsed into a single variable each. The Internet variable is then double weighted in the final calculation, as are the international telephone traffic scores, reflecting their status as important means by which ideas and information are spread across national borders. Globalization Index scores for every country and year are derived by summing the scores across panels.

Small trading nations tend to take top places in the index, leading some observers to speculate that size plays an undue role in determining levels of globalization. A closer look, however, suggests otherwise. Statistically speaking, there is very little direct correlation between the size of a countrys economy and its globalization rank. Big economies rank from 11th (United States) to 51st (China), while smaller economies rank from 1st (Ireland) to 46th (Egypt) and 60th (Venezuela). But size is not irrelevant, either; it is only in combination with the level of economic development, as measured by per capita income, that the relationship becomes clear. Simply put, small countries tend to have an advantage over larger countries at similar levels of per capita income.

These key indicators only scratch the surface of globalizations complexity. Many other aspects of global integrationincluding culturedefy measurement.

Cultural exchange has undoubtedly grown in tandem with the movement of people and ideas across borders and with the growing use of communications technology, but little accurate data are available. For instance, statistics on trade flows in music or books might show a countrys comparative advantages in manufacturing these products, such as CDs and technical manuals, but would not reveal whether the goods reflect the ideas and culture of the exporting nation. Consequently, cultural trends are not included in this index.