ASIA
26 March 2014
Measuring Asia's globalization
Asia's emerging economies have benefited greatly from the global economy. However, the KOF Index of Globalization suggests that Asia is still "under-globalized".
Asia's emerging economies have benefited greatly from the global economy. However, the KOF Index of Globalization suggests that Asia is still "under-globalized".
Interpreting measures of globalization is a tricky business. Small countries like Belgium or Singapore will always come out on top. They have to be global to survive. Large economies like the US or China score lower, in part because a lot more trade and investment takes place inside their borders. And yet they are home to the world’s most global cities, like New York or Shanghai.
Nevertheless, KOF’s Index of Globalization is most certainly worth a look at.
The KOF team has a rather convoluted definition of globalization, namely:
“the process of creating networks of connections among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital and goods. Globalization is conceptualized as a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex relations of mutual interdependence.”
But the basic point at issue is how connected you are to the rest of the world.
The KOF Index of Globalization incorporates the economic, social and political dimensions of globalization.
. Economic globalization is measured by the actual flows of trade, foreign direct investment and portfolio investment, as well as the restrictions applying to these flows.
. Social globalization is expressed as the spread of ideas, information, images and people. It is estimated by personal contact (international telephone traffic, transfers, tourism, foreign population, and international letters), information flows (Internet users, television ownership, trade in newspapers), and cultural proximity (number of McDonald’s restaurants, number of Ikea shops and trade in books).
. Political globalization is characterized by the degree of political cooperation. It is measured by the number of embassies, membership of international organizations, participation in UN Security Council missions, and number of international treaties signed.
So what are the main trends?
Since 1980, there has been a progressive upward trend in the KOF Index of Globalization, with a strong boost after the end of the Cold War in 1989. Economic globalization has been consistently well above the overall Index of Globalization, climbing fairly steadily. It did however stall after the year 2000, around the time of the bursting of the dot.com bubble and the tragic 9/11 terrorist attacks. And it has fallen back once again in the context of the present global financial crisis. Political globalization has continued to rise above the overall index, while social globalization has been consistently below.
In general, the advanced OECD countries rank well above the world average for the Globalization Index, while high income non-OECD countries are a little above, and low income countries, well below the world average. This is not surprising as globalization is a powerful driver of economic prosperity.
However, despite Asia’s economic dynamism, East Asia and more so South Asia are quite a way below the world average. East Europe and Central Asia are now above the world average, Latin America is hovering around the world average, while Sub-Saharan Africa is way below.
For the overall Index of Globalization, smaller countries top the list of 187 countries – Belgium 1st, Ireland 2nd, Netherlands 3rd, Austria 4th, and Singapore 5th. The US ranks quite high for such a large country at 34th.
After Singapore, the highest ranking Asia-Pacific countries are: Australia 21st, Malaysia 27th, Japan 56th, Thailand 57th, Korea 60th, and China 73rd. Not surprisingly, poorer Asian countries find themselves much further down the list -- Mongolia 85th, Philippines 88th, Indonesia 90th, India 107th, Sri Lanka 114th, Vietnam 126th and Myanmar at 177th.
But to get any real meaning out of the KOF Index of Globalization, you need to unpack its components.
Singapore is an interesting case. With its highly open economy, it ranks first in the world for economic globalization. It also ranks 2nd in the world for social globalization with its very international population, large flows of tourists and tech-savvy, connected population. But when it comes to political globalization, Singapore is way down the list at 77th. It has a low number of embassies, and memberships of international organizations. In fact, Singapore prefers to take advantage of the global economy, while accepting the least possible responsibilities and obligations.
Japan's globalization is also quite disparate. Reflecting its relatively closed economy, it only ranks 125th for economic globalization (below Myanmar!). But a well connected population lifts its social globalization score up to 51st, and its vast number of embassies and memberships of international organizations mean that its political globalization ranking is 33rd.
Despite its immense size, China is only weakly globalized. It may be a big player in global trade and investment, but their share of China's economy is relatively small. China also still has many barriers to international trade and finance. So it only comes 109th for economic globalization. A highly controlled social and information environment result in a 90th ranking for social globalization, while its active diplomacy leads to a 44th rank for political globalization. A similar story could be told for India (which has bad communications infrastructure), with the following rankings -- economic globalization 128th, social globalization 144th, and political globalization 18th.
Malaysia is a country that has always embraced globalization, and scores quite highly with: economic globalization at 25th, social globalization 34th and political globalization 47th.
As Myanmar has moved to the center of global interest, the KOF Index of Globalization gives a very useful indicator of how far behind this country is. Its for economic globalization is 117th, social globalization 193rd and political globalization 170th.
The overall conclusion is that Asia's economies remain "under-globalized", even though globalization may have been a key factor driving their rapid development. Despite its enormous size, the US is still substantially globalized with the following scores: economic globalization 82nd, social globalization 27th and political globalization 19th. And the Lilliputian country of Belgium ranks 6th, 5th and 3rd respectively.
These crisis-ridden times may not seem propitious for opening up to more globalization. But in reality it is right now that countries should be looking to globalization as an extra motor of growth.
This is especially the case for Japan as it launches its new "Abenomics" strategy. Japan really is an outlier. Although its economic size is about one-third of the American economy, it scores much lower on all dimensions of globalization. If you are wondering why Japan is having so many economic, social and political difficulties at the moment, this KOF Index of Globalization gives you some good insights!
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Interpreting measures of globalization is a tricky business. Small countries like Belgium or Singapore will always come out on top. They have to be global to survive. Large economies like the US or China score lower, in part because a lot more trade and investment takes place inside their borders. And yet they are home to the world’s most global cities, like New York or Shanghai.
Nevertheless, KOF’s Index of Globalization is most certainly worth a look at.
The KOF team has a rather convoluted definition of globalization, namely:
“the process of creating networks of connections among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital and goods. Globalization is conceptualized as a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex relations of mutual interdependence.”
But the basic point at issue is how connected you are to the rest of the world.
The KOF Index of Globalization incorporates the economic, social and political dimensions of globalization.
. Economic globalization is measured by the actual flows of trade, foreign direct investment and portfolio investment, as well as the restrictions applying to these flows.
. Social globalization is expressed as the spread of ideas, information, images and people. It is estimated by personal contact (international telephone traffic, transfers, tourism, foreign population, and international letters), information flows (Internet users, television ownership, trade in newspapers), and cultural proximity (number of McDonald’s restaurants, number of Ikea shops and trade in books).
. Political globalization is characterized by the degree of political cooperation. It is measured by the number of embassies, membership of international organizations, participation in UN Security Council missions, and number of international treaties signed.
So what are the main trends?
Since 1980, there has been a progressive upward trend in the KOF Index of Globalization, with a strong boost after the end of the Cold War in 1989. Economic globalization has been consistently well above the overall Index of Globalization, climbing fairly steadily. It did however stall after the year 2000, around the time of the bursting of the dot.com bubble and the tragic 9/11 terrorist attacks. And it has fallen back once again in the context of the present global financial crisis. Political globalization has continued to rise above the overall index, while social globalization has been consistently below.
In general, the advanced OECD countries rank well above the world average for the Globalization Index, while high income non-OECD countries are a little above, and low income countries, well below the world average. This is not surprising as globalization is a powerful driver of economic prosperity.
However, despite Asia’s economic dynamism, East Asia and more so South Asia are quite a way below the world average. East Europe and Central Asia are now above the world average, Latin America is hovering around the world average, while Sub-Saharan Africa is way below.
For the overall Index of Globalization, smaller countries top the list of 187 countries – Belgium 1st, Ireland 2nd, Netherlands 3rd, Austria 4th, and Singapore 5th. The US ranks quite high for such a large country at 34th.
After Singapore, the highest ranking Asia-Pacific countries are: Australia 21st, Malaysia 27th, Japan 56th, Thailand 57th, Korea 60th, and China 73rd. Not surprisingly, poorer Asian countries find themselves much further down the list -- Mongolia 85th, Philippines 88th, Indonesia 90th, India 107th, Sri Lanka 114th, Vietnam 126th and Myanmar at 177th.
But to get any real meaning out of the KOF Index of Globalization, you need to unpack its components.
Singapore is an interesting case. With its highly open economy, it ranks first in the world for economic globalization. It also ranks 2nd in the world for social globalization with its very international population, large flows of tourists and tech-savvy, connected population. But when it comes to political globalization, Singapore is way down the list at 77th. It has a low number of embassies, and memberships of international organizations. In fact, Singapore prefers to take advantage of the global economy, while accepting the least possible responsibilities and obligations.
Japan's globalization is also quite disparate. Reflecting its relatively closed economy, it only ranks 125th for economic globalization (below Myanmar!). But a well connected population lifts its social globalization score up to 51st, and its vast number of embassies and memberships of international organizations mean that its political globalization ranking is 33rd.
Despite its immense size, China is only weakly globalized. It may be a big player in global trade and investment, but their share of China's economy is relatively small. China also still has many barriers to international trade and finance. So it only comes 109th for economic globalization. A highly controlled social and information environment result in a 90th ranking for social globalization, while its active diplomacy leads to a 44th rank for political globalization. A similar story could be told for India (which has bad communications infrastructure), with the following rankings -- economic globalization 128th, social globalization 144th, and political globalization 18th.
Malaysia is a country that has always embraced globalization, and scores quite highly with: economic globalization at 25th, social globalization 34th and political globalization 47th.
As Myanmar has moved to the center of global interest, the KOF Index of Globalization gives a very useful indicator of how far behind this country is. Its for economic globalization is 117th, social globalization 193rd and political globalization 170th.
The overall conclusion is that Asia's economies remain "under-globalized", even though globalization may have been a key factor driving their rapid development. Despite its enormous size, the US is still substantially globalized with the following scores: economic globalization 82nd, social globalization 27th and political globalization 19th. And the Lilliputian country of Belgium ranks 6th, 5th and 3rd respectively.
These crisis-ridden times may not seem propitious for opening up to more globalization. But in reality it is right now that countries should be looking to globalization as an extra motor of growth.
This is especially the case for Japan as it launches its new "Abenomics" strategy. Japan really is an outlier. Although its economic size is about one-third of the American economy, it scores much lower on all dimensions of globalization. If you are wondering why Japan is having so many economic, social and political difficulties at the moment, this KOF Index of Globalization gives you some good insights!
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com