Globalization indices showing how countries participate in global interactions
- Globalization: “the growing interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and through more rapid and widespread diffusion of technology”(International Monetary Fund).
- Glocalization: It is a term that was invented to emphasize that the globalization of a product is more likely to succeed when the product or service is adapted specifically to each locality or culture it is marketed in. e.g:-presence of McDonald’s restaurant everywhere on the globe = globalization and the changing menus of the restaurant to appeal to the local tastes =glocalization
- Transnational Corporations (TNCs): Companies with branches in many parts of the world eg. Coca Cola, Apple, MacDonald’s etc
The drivers of globalisation:
- Improvements in transportation: For example, faster and bigger aeroplanes enable labor and goods to move easily from one place to another; road transport network improvements have allowed for cheaper means of moving goods and people; sea transport – larger container ships – facilitating the transportation of large volumes of goods.
- Freedom of trade: For example, the EU, NAFTA, ECOWAS AND COMESUR have all contributed to allowing the free movement of goods, services, ideas and labour between member countries and across regional boundaries.
- Improvements in communications: Eg, improvements in telecommunication and the internet have contributed to the exchange of ideas and services through the internet.
- Cheap Labour in developing countries – This is also aided by technology, for example, through outsourcing. This makes it possible to outsource services to labour in different parts of the world. Eg. Marking IB scripts online by different examiners in different parts of the world.
Measuring Global Interactions
1. The KOF Index
The KOF Index of Globalization was introduced in 2002 (Dreher, 2006). KOF is a Swiss Institute of Business Cycle Research. The overall index covers the economic, social and political dimensions of globalization.
Economic globalization, characterized as long distance flows of goods, capital and services as well as information and perceptions that accompany market exchanges; Political globalization, characterized by a diffusion of government policies; and Social globalization, expressed as the spread of ideas, information, images and people.
Broadly speaking, economic globalization has two dimensions:
- Actual Flows: The sub-index on actual economic flows includes data on trade, FDI and portfolio investment.
- Restrictions: The second index refers to restrictions on trade and capital using hidden import barriers, mean tariff rates, taxes on international trade and an index of capital controls.
The KOF index classifies social globalization into three categories:
- Personal Contacts: This measures direct interaction among people living in different countries, using Telephone Traffic, Transfers (percent of GDP), International Tourism, Foreign Population (percent of the total population), International letters (per capita)
- Information flows: includes the number of internet users, (per 1000 people), the share of households with a television set, and international newspapers traded (in percent of GDP).
- Cultural Proximity: Cultural proximity is arguably the dimension of globalization most difficult to understand. Dreher (2006) suggests the number of English songs in national hit lists or movies shown in national cinemas that originated in Hollywood, the number of McDonald’s Restaurants, the number of Ikea shops, etc.
- the number of embassies and high commissions in a country
- number of international organizations to which the country is a member,
- the number of UN Security Council peace missions a country participated in and international Treaties.
Method of Calculation
To construct its globalization index KOF transforms each variable into an index using a scale of 1 to 100, where 100 is the maximum value for a specific variable over the period 1970 to 2006 and is the minimum value. Higher values indicate a greater degree of globalization. The data is transformed according to the percentile of the original distribution.
The weights for calculating the sub-indices are determined using principal components analysis for the entire sample of countries and years. The analysis partitions the variance of the variables used in each sub-group. The weights are then determined in a way that maximizes the variation of the resulting principal component, so that the indices capture the variation as fully as possible. The same procedure is applied to the sub-indices in order to derive the overall index of globalization.
According to the index, Belgium is the most globalised nation in the world, followed by Austria, Sweden and the Netherlands. The least globalised country is Burundi, Burma and Central African Republic. However, countries like Saudi Arabia, North Korea, Somalia and other Islamic states were left out in the analysis by KOF.
Source: Dreher, Axel (2006): Does Globalization Affect Growth? Evidence from a new Index of Globalization, Applied Economics 38, 10: 1091-1110.
Click on the 2019 KOF Index for further details. Check on the right hand corner of the screen and you will find links to a number of useful documents relating to the index.
2019 Globalization rankings:rankings_2019.pdf
Other indices for measuring globalization include Ernest and Young (EY), AT Kearney, and Maastricht Globalization index (MGI)
2. A.T Kearney Index
AT Kearney is a management consultancy firm that advises large corporations on international competitiveness. Founded in 1926 in the US (Chicago), it publishes its index in the Foreign Policy Magazine.
The AT Kearney Foreign Policy index assesses the extent to which the world’s most populous nations are becoming more or less globalised, using twelve variables, which are subdivided into four “baskets” of global integration:
- Combines data on international trade
- and foreign direct investment (FDI) inflows and outflows,
- International travel and Tourism
- Counts the number of internet users
- Internet hosts,
- and secure servers
- Includes each country’s membership in a variety of representative international organizations e.g foreign aid, treaties, organizations, and peacekeeping operations
- International telephone calls
- cross-border remittances
3. The Maastricht Globalization Index(MGI)
This index was developed by researchers in Maastricht University in the Netherlands. Its indices are summarized in the following diagram
Question: Discuss the strengths and weaknesses of the indices for measuring globalization
Weaknesses: Guiding questions:
- How reliable is the data on the global flow of goods and services?
- To what extent can data on social globalization, such as the number of TV subscribers or Hollywood movies, serve as a reliable source of data for measuring global interactions?
- What sample size was chosen for the research on measuring globalization?
- Both indices have ignored environmental globalization, yet this is an important aspect of today’s development.
- The index provides a good framework for the conceptualization of the measurement of globalization
- Divide yourselves into four groups. Discuss the rest of the strengths and weaknesses
Global superpowers and their economic, geopolitical and cultural influence
- Superpower: a nation or group of nations with a leading position in international politics
- Soft power – a persuasive approach involving the use of economic and cultural dominance to influence international relations
- Hard power– the use of military power and economic policies to influence countries, institutions or organizations in the interest of the dominant country (superpower)
- Socialism – a political and economic system based on the view that economic production and distribution of goods and services should be owned by the state. With this system, individuals cannot own private property.
- Democracy — a form of political development in which the government is elected by the people in free elections.
- Capitalism— an economic system for the generation of goods and services based on private enterprise. Most of the resources/means of production are owned by a relatively small number of individuals or companies. Workers convert their labour for wages.
- Communism-a form of political development that envisages equality among people and a classless society. It’s a type of revolutionary socialism based on the common ownership of the means of production and a shared economy. Each person should work according to his/her capacity and gain according to his/her capacity.
The history of superpowers began far back as 1500s when Portugal emerged as the leading global superpower. This was followed by the dominance of the Dutch (Netherlands) in the 1600s and later the British influence from about the 1700s to the mid-1900s. The decline in the British hegemony was mainly due to the independence of former British colonies. The USA and the USSR rose to prominence as rival superpowers after the Second World War until the 1950s when the USA remained as the sole superpower.
From the 1920s, the USA and the USSR competed to become superpowers at the time. This led to the Cold War between these countries. Even though no physical war was fought, they engaged in ideological battles from 1947 through to 1990.
Countries gain superpower status through economic, military, cultural and technological dominance over many countries. This could be done through the use of ‘Soft power’ (cultural influence and diplomacy) or ‘Hard power’ (use of military force,economic and trade policies). A combination of Hard and Soft powers leads to the develop of a Smart power.
Today, emerging superpowers have arisen to compete with the United States for recognition. Some of these countries China, Russia, India, Qatar and the European Union.
Case Studies of Global Superpowers:
Detailed examples of at least two actual or potential global superpowers
Actual superpower: United States of America
- Military superpower
- Military equipment
- Economic importance
- US Dollar
- Natural resource endowment
- Technological power
- Cultural influence
Potential Superpower: China
Powerful organizations and global groups:
1. The Group Of Seven (G7) /8
The G7 (Group of Seven) Industrialized and high-income countries (HICs) consist of The United Kingdom, United States, Italy, Germany, France and Japan and Canada. It was formed in 1975 as the Group of Six, made of finance ministers and bank governors from the member countries, without Canada. The aggregate GDP of the G7 is about 50% of the total global economy. Canada became the seventh member a year after. These countries meet annually to discuss matters of global concern. In 1998, Russia was allowed to join the group as the only communist country, which gave birth to the G8. Russia was however expelled in 2014 with its annexation of Crimea. The main objectives include discussing issues of global governance, global economy, energy policy, and international security.
Achievements of the G7/8:
- They have helped to maintain global economic stability, especially after the 1073 economic recession.
- They launched the Heavily Indebted Poor Countries (HIPC) initiative in 1999, which aimed at cancelling the bilateral and multilateral debts of poor countries
- In 2014, the G7 condemned Russia’s annexation of Crimea and pledged their support for Crimea through the International Monetary Fund (IMF)’s bailout plan
Challenges of the G7
2. The Group of 20
The Group of Twenty (G20) is an international forum of governors of central banks and governments from 20 of the world’s leading industrialized and emerging economies. These countries include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russian Federation, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States and the European Union.
Other members include two African nations, the governors of the International Monetary Fund (IMF) and the World Bank, the International Monetary and Financial Committee as well as the chairpersons of ASEAN and the Development Assistance Committee. It was established in 1999 with the responsibility of designing policies to promote international financial stability as well as address global issues that require the collective responsibility of various countries to solve. They also address issues relating to global security, the increasing role of the Asian economies in world economic development and the role of IMF and the World Bank in stabilizing the global financial markets.
The G20 countries account for about 85% of the global GDP, two-thirds of the world’s population, 80% of world trade and about half of the world’s total land area
Criticisms of the G20
- Many have criticized the G20 as not being transparent, as it does not have an existing charter and most meetings are usually held behind closed doors.
- Other institutions have criticized the G20 as ineffective in combating the global financial crisis of 2008 and questioned its ability to implement economic policies that could ensure global financial stability
- The underrepresentation of Africa has also been questioned
3. Organization for Economic Cooperation and Development (OECD) groups
4. Organization of the Petroleum Exporting Countries (OPEC) influence over energy policies
5. Global lending institutions:
The World Bank
- The World Bank is a vital source of technical and financial support to developing countries around the world. It was established in 1964 by 187 member countries. It is made up of two main bodies – the International Bank of Reconstruction and Dev’t and the International Dev’t Association.
- Its head office is in Washington DC, in the US and it has offices in over 100 countries worldwide.
- The main aim of the WB was initially to provide loans at low-interest rates, but by 1968 – the 1980s its focus was on providing LEDCs with interest-free credits and grants for a wide range of development projects, ranging from education to agricultural reform.
- It also increased the size of its lending and extended borrowing to many other countries and institutions.
- Its mission is to ‘fight poverty with passion and professionalism… and to help people help themselves and their environment by providing resources, sharing knowledge and building capacity and forging partnerships in private and public sectors.
- To ensure that countries continue to enjoy the services of the WB, it has revised its services and now aims at achieving the Millennium Dev’t Goals, lending to middle-income economies.
Criticisms of the World Bank
- Many scholars have argued that the policies of the WB are detrimental to the dev’t of developing countries. These scholars point out that western economic practices cannot be applied successfully in developing countries.
- Others have also argued that WB has worsened the plight of many in the developing world. E.g the introduction of the structural adjustment programme in Ghana led to the retrenchment of many workers which resulted in severe unemployment and underemployment.
- It also leads to the breakdown of traditional economic structures
- Even though WB is represented by 187 countries, only a few rich countries run it.
- The bank’s roles are contradictory – is it a political institution or a practical institution? It has been seen to be performing the first role, but it seems WB does not play the practical role of being neutral.
- It also seems to focus so much on the growth of a country’s GDP rather than on the standard of living of its citizens.
International Monetary Fund
Started in 1944, and governed by 187 member countries, the aim of IMF is to:
- Secure financial stability
- Foster international monetary cooperation
- Facilitate international trade
- Promote high employment
- Sustainable economic growth
- Reduce poverty around the world.
The primary responsibility of the IMF is to ensure the stability of the International monetary system i.e. the system of exchange rates and international financial payments that enables countries to transact business with one another.
Member states can borrow from the fund and in return, they are expected to abide by the terms and conditions of the bank. These terms are usually financial reforms that the borrowing country needs to abide by. E. g Greek and Irish bailout loans
Criticisms of IMF
- It is controlled by western nations. E.g. Most of it directors and MDs are either European or American. E.g. Dominique Straus Khan, Christen Laggarde etc.
- It does not offer quick responses to crises. E.g. Greek financial crisis. IMF only came when the EU has done as much as it could.
- Most of its assistance comes with austerity plans most of which are to the detriment of the citizen – e.g. tax increases and cuts in social welfare benefits
- It leads to the privatization of state-owned enterprises – e.g. With the introduction of SAPs
World Trade Organization
- The World Trade Organization (WTO) is an international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers.
- Based in Geneva, the WTO was set up in 1995, replacing the General Agreement on Tariffs and Trade (Gatt).
- Gatt was formed in 1948 when 23 countries signed an agreement to reduce customs tariffs.
- Membership in the WTO now stands at 159 countries (as of July 2008). China formally joined the body in December 2001 after a 15-year battle.
- The WTO has a much broader scope than Gatt. Whereas GATT regulated trade in merchandise goods, the WTO also covers trade in services such as telecommunications and banking, and other issues of intellectual property rights.
- Its main role is to establish and regulate a set of rules to govern international trade.
- It works towards trade liberalization and settles disputes related to trade between countries.
- Administering WTO trade agreements
- Forum for trade negotiations
- Handling trade disputes
- Monitoring national trade policies
- Technical assistance and training for developing countries
- Cooperation with other international organizations
Criticism of WTO
- WTO is too powerful, in that it can ineffective in compelling sovereign states to change laws and regulations. This does so by declaring these to be in violation of free trade rules.
- WTO is run by the rich for the rich and does not give significant weight to the problems of developing countries.
- WTO is indifferent to the impact of free trade or workers’ rights, child labour, the environment and health.
- WTO lacks democratic accountability, in that its hearings on trade disputes are closed to the public and the media.
- Supporters of the WTO argue that it is democratic, in that its rules were written by its member states, many of whom are democracies, who also select its (WTO) leadership.
- They also argue that, by expanding world trade, the WTO in fact helps to raise living standards around the world.
New Development Bank (NDB)
By Nii Okai Nunoo, Shenelle Snowdon and Lee Bediako
The ambitious project to form a development bank was proposed by India during the 4th BRICs summit in 2012, while it was hosted in New Delhi. It wasn’t till the subsequent BRICs summit (5th) in Durban, South Africa that the proposal was agreed on after a report which was made by the various Finance Ministers on the viability and feasibility of the proposal came back positive.
The 6th Summit of The BRICs in Fortaleza the agreement was signed and each country of the organization was given an equal number of shares
The New Development Bank was founded by the BRICS countries, namely; Brazil, Russia, India, China and South Africa
All members of the United Nations are welcome to join the NDB however, the BRICS nations must always have at least 55% of the voting power.
The main objectives of NDB operations are:
- Fostering the development of member countries (which are the BRICS countries)
- Supporting economic growth- The bank aims at supporting public and private businesses through loans, guarantees, equity participation as well as other financial instruments.
- Promoting competitiveness and facilitating job creation- Through the funding of projects employment will be created for locals in which the projects are located.
- Building a knowledge-sharing platform among developing countries.
- promoting sustainable development which is consistent with the purposes and principles of the United Nations in the socio-economic field.
CRITICISMS OF THE New Development Bank
- The NDB has been criticized for not being transparent.
- The main cause of this criticism is the $200 million loan that the NDB gave to South African transport company, Transnet to expand the Durban port.
- The NDB was meant to be by and for the developing world, however, as of November 2019, its only members were its founders.
- China has the largest economy and makes the most contributions to this bank and so, even though voting rights are officially equal, China still holds most of the power.
- The bank has broken new ground in that there are no comparable financial institutions in emerging markets with such high credit quality and without any highly rated non-borrowing members as shareholders.
- The New Development Bank obtained a AAA international credit rating from Japan Credit Rating Agency in August 2019, and an AA+ rating in 2018 from Standard & Poor and Fitch respectively.
- Within their first year from the start of their work, the Board of the Bank approved the first set of projects with a total commitment of $911 million, one project in each of their five member countries, ensuring growth within their communities.
- The NDB has contributed greatly to the green and renewable energy their countries are benefiting from due to their policy of focusing on green energy and sustainable infrastructure.
- “History.” New Development Bank, www.ndb.int/about-us/essence/history/.
- “The BRICS Bank.” The Bill Blog, 8 Apr. 2015, bkeithler.wordpress.com/2014/07/29/the-brics-bank/.
- Mhlanga, T. “Brics bank fails to live up to hype”. Mail & Guardian, 22 June 2018, https://mg.co.za/article/2018-06-22-00-brics-bank-fails-to-live-up-to-hype/.
- “Members”. The New Development Bank, https://www.ndb.int/about-us/organisation/members/
- Andreoni, M. “The NDB promised to revolutionise development finance – what happened?”. Dialogo Chino, 11 Nov. 2019, https://dialogochino.net/en/infrastructure/31590-the-ndb-promised-to-revolutionise-development-finance-what-happened/.