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But it is not that simple: the degree of globalisation is not easily measured, as John Whalley and his colleagues Raymond Riezman and Shunming Zhang make clear in one of their latest CESifo Working Papers. For one thing, despite all the hype surrounding it, globalisation is an astonishingly ill-defined term. Ask an economist, a sociologist, a politician and a factory-floor worker and you will get quite different views on what it is. But that does not preclude its being bandied about with total abandon on a daily basis. Thus, in order to measure something as slippery as globalisation you first have to agree on what you mean by it. The authors, sensibly enough, start exactly there. They state clearly what they take globalisation to mean: an ever deeper market-based economic integration among countries, with the emphasis laid on more trade and investment flows, increased international labour mobility, prompt execution of cross-border transactions and so on, rather than the governance and identity issues stressed by political scientists and sociologists. Then, they examine the current measures used to capture a country's degree of globalisation. Some are based on a trade/GDP ratio and usually show Singapore topping the list: small entrepôt economies cannot but score high here. The problem is that if you compare these top-scoring countries' commodity prices with those of neighbouring countries, they immediately appear as substantially less fully integrated. Similar shortcomings are described for other such indices. So, the authors settle for examining the distance of particular economies between two sorts of equilibria: their current one and one that would characterise full integration into the global economy, i.e. free trade in goods, full capital and labour mobility and so on. To make their calculations, they used data for eight OECD countries (Australia, Germany, Italy, Japan, South Korea, Mexico, UK and US) chosen for their differing size, level of per-capita income, trade patterns, and size of trade barriers. They first considered direct price or quantity measures of distance between both equilibria. Then they looked at the absolute value of excess demand for goods and production factors by taking the prices in one equilibrium and introducing them into the model generating the other equilibrium. They finally constructed endowment change metrics of distance. Their conclusion was that these globalisation distance metrics can behave in different ways, making numerical measures of the degree of globalisation hard to interpret: no unambiguously appropriate metric presents itself. As a result, they decided to pursue a more limited objective, namely measuring globalisation in relative terms —in other words, determining which countries are more globalised than others. They examined what happens when the countries chosen eliminate tariffs altogether and found —not surprisingly— that specialisation would occur as the equilibrium outcome. They considered an 8% reduction in tariff rates in all countries —the maximum common reduction possible— as this would allow for comparability across countries since each country's tariffs are reduced by the same percentage. Next, they explored the largest possible reduction in national tariffs such that specialisation does not occur: tariffs are reduced by different percentages in different countries, and in some cases done away with altogether. The final calculation was to apply the same absolute reduction in tariff rates for each country: they found the sustainable reduction without leading to specialisation to be 1.9%. Alas, while the results were interesting, no consistency was found across the measures for any of the sampled countries, making it impossible to draw any conclusion as to whether, for instance, an 8% tariff reduction moves countries considerably closer or only a little closer to global integration. Based on these results, the authors conclude that constructing and interpreting measures of globalisation distance is a difficult business. Still, it turns out that the resulting data do shed some light on the relative degree of globalisation. The authors took each of their eleven measures of globalisation and then ranked the 8 OECD countries in their analysis by how globalised they are. They found that, for the 8%-reduction criterion, the UK is the most globalised country for every ranking and the US the second most globalised for all but one measure. Mexico is the least globalised , followed by South Korea. For the 1.9% reduction the picture muddied just a tiny bit, showing the US and the UK as the most globalised countries, and Mexico and Germany the least globalised ones. Roughly, combining the results for both parameters, the relative globalisation of the 8 countries analysed would appear to be as follows, from most- to least-globalised: UK This suggests that while obtaining quantitatively meaningful measures of globalisation may be extremely difficult, obtaining relative globalisation rankings may be an attainable goal.
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Note: This text is the responsibility of the writer and does not necessarily reflect the opinion of either the CESifo Working Paper author(s) cited or the CESifo Group Munich. Copyright © CESifo GmbH 2005. All rights reserved. |
With globalisation making the rounds among the chattering classes and
on the barricades, producing yardsticks for measuring just how globalised
a country is has become something of a cottage industry. Prestigious news
media publish rankings showing the current stand of the globalisation
sweepstakes, making legions fret about how (un)globalised their respective
countries are.