How the Index is Calculated

The A.T. Kearney/Foreign Policy Globalization Index tracks and assesses changes in four key components of global integration, incorporating such measures as trade and financial flows, movement of people across borders, international telephone traffic, Internet usage, and participation in international treaties and peacekeeping operations.

The 62 countries ranked in the 2004 Globalization Index account for 96 percent of the world’s gross domestic product (GDP) and 84 percent of the world’s population. Major regions of the world, including developed and developing countries, are covered to provide a comprehensive and comparative view of global integration.

Economic integration combines data on trade, foreign direct investment (FDI), and portfolio capital flows, as well as investment income payments and receipts. Personal contact tracks international travel and tourism, international telephone traffic, and cross-border remittances and personal transfers (including worker remittances, compensation to employees, and other person-to-person and nongovernmental transfers). Technological connectivity counts the number of Internet users, Internet hosts, and secure servers through which encrypted transactions are carried out. Finally, political engagement tracks each country’s memberships in international organizations, personnel and financial contributions to U.N. Security Council missions, ratification of selected multilateral international treaties, and the amount of governmental transfer payments and receipts.

For most variables, each year’s inward and outward flows are added, and the sum is divided by the country’s nominal economic output (as measured by GDP) or, where appropriate, its population. Two of the political engagement indicators remain absolute numbers: memberships in international organizations and number of selected treaties ratified, a variable added this year to gauge country participation in multilateral agreements. Another modification is that a country’s contributions to U.N. Security Council missions are measured as a weighted average of financial contribution divided by the country’s GDP and the country’s personnel contribution divided by the country’s population. As such, the indicator counts a country’s contributions relative to its capacity to contribute, rather than the absolute size of contribution. This process produces data for each year, enabling comparisons between countries of all sizes.

The resulting data for each given variable are then normalized through a process that assigns values to data points for each year relative to the highest data point that year. The highest data point is valued at one, and all other data points are valued as fractions of one. The range of normalized scores for each variable each year is then multiplied by a "scale factor." The base year (1998 in this case) is assigned a value of 100, for simplicity. The given variable’s scale factor for each subsequent year is the percentage growth or decline in the normalized score of the highest data point, relative to 100. With the scale factor, comparisons between countries in the same year are preserved, while comparisons between changes in individual variables over time are possible.

Country index scores are then summed, with double weighting of FDI due to its particular importance in the ebb and flow of globalization. Technological variables and political variables are each collapsed into single indicators, with equal weightings for the component variables. Globalization Index scores for every country and year are derived by summing all the indicator scores.

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 little correlation between the size of a country’s economy and its level of globalization. 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.