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Globalisation – how globalised is the world?

Wednesday, September 25, 2013
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Today in class we were discussing the forces of globalisation, and some of the discussion took us down the following route:

Globalisation is defined in many different ways – there is no textbook definition - but economic globalisation is usually characterised by some of the following features:

    - An increasing interdependence between economies and an erosion of national boundaries

    - Increased cross-border activity from MNCs

    - Increased cross-border flow of trade in goods and services, movement of people, flows of financial assets, hot money, and FDI flows

    - The growth of labour migration and outsourcing and global supply chains

The OECD’s definition is: “The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross-border networking of companies, for example through joint ventures and the sharing of assets”

One index that attempts to quantify and measure globalisation is called the KOF index.

In constructing the index of globalisation, the variables that are included are:

Trade : (X+M) (percent of GDP)

Foreign Direct Investment stocks (inward and outwards) (percent of GDP) Portfolio Investment (percent of GDP)

Income Payments to Foreign Nationals (percent of GDP) World Bank (2011)

Mean Tariff Rate

Taxes on International Trade (percent of current revenue)

Capital Account Restriction

It also includes things like internet penetration (random fact: Finland in 2010 made access to broadband a human right - click here) and international letters per capita, to try to judge social globalisation. For a proxy for political globalisation they look at membership of international organisations, foreign embassies, signatory of international treaties.

They also look at the number of McDonald’s and Ikea stores per capita as a barometer of social globalisation.

This prompted one of the my pupils to ask how many countries in the world Macdonald’s was present in.

Google told me that the answer is… QUITE A LOT! ‘There are still 105 countries without the fast food giant, from Ghana to Jamaica to Yemen to Tajikistan…’

See the article here

(Which prompted another question from a pupil – the Big Mac Index published by the economist then is limited in its breadth if it skips half the world out!)

This makes it a good variable to look at since it is not as global as say Coca-Cola - Only two countries in the world where Coca-Cola isn’t: guess who? Answer here. (But perhaps the Economist should publish a Coca-Cola Index instead or a Starbucks index).

The 2013 KOF Index can be analysed in this press release.

“China: The second largest economy in the world, China, is ranked 73rd in the KOF Index of Globalization 2013. Compared to the previous year,China has moved up three positions. In terms of economic globalization, the People’s Republic has stayed put (currently:109th); it has gained three ranks in terms of social integration and is now ranked 90th.Owing to its involvement in international politics and its increasing importance, China is ranked 44th in the political globalization component (one place higher than in 2009).”

“USA: The USA has kept its position in the rankings of the previous year and is still 34th.The USA has lost ground in terms of economic globalization compared to the previous year.The USA is now ranked 82nd (previous year: 80th).As a large economy, a high proportion of its trade is internal which means that the USA does not“need”to be as globalized as small countries. The “Actual Flows”sub-indicator that includes trade and cash flows has fallen as a result ofthe financial and economic crisis. As in the majority of industrial nations, social globalization has remained at approximately the same level for several years (position 27),while the USA moved up 3 positions in terms of political globalization (Rank 19).”

It offers some interesting insight into the process of globalisation. Crucially it points out:

-That globalisation is a process, not an end state. The 2008-2012 crisis saw the world de-globalise

-There are vast differences between individual countries who are globalised and others who barely appear on the index – that is to say, generalisations about the globalisation process cannot be made (pupils were surprised where the U.S ranked)

-There is a big difference between globalisation and regionalisation – no coincidence that 13 of the top 15 most globalised countries are around Europe.

Chomsky on Globalisation



 

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Economics CPD Courses in June 2014

Economics CPD Courses in June 2014 - Book Your Places Now!

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