Robustness of the KOF index of economic globalisation

• Date: 01 February 2018
• Author: Giray Gozgor
• DOI: http://doi.org/10.1111/twec.12546
• Published date: 01 February 2018

ORIGINAL ARTICLE

Robustness of the KOF index of economic

globalisation

Giray Gozgor

International Relations, Istanbul Medeniyet University, Istanbul, Turkey

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INTRODUCTION

Since 2002, the KOF indices of globalisation have set out very useful data set of researchers, who

are interested in empirical studies of international trade. The index was first introduced by Dreher

(2006)

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and it is annually updated by Dreher, Gaston, and Martens (2008). The KOF index of

globalisation considers economic, political and social dimensions of globalisation. The main idea

behind the KOF globalisation index is that globalisation has to be a process of creating new net-

works among economic actors worldwide (Dreher, 2006; Schulze & Ursprung, 1999). It also opens

up variety of all inflows such as, capital, culture, goods, ideas and information (Dreher et al.,

2008; Scholte, 2008). There are also several globalisation indices

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in international economics liter-

ature, but the KOF indices of globalisation are the most used globalisation measures (Potrafke,

2015). Indeed, the KOF index of globalisation is widely used as a benchmark measure of globali-

sation in international economics literature (e.g., Eppinger & Potrafke, 2016; Osterloh, 2012;

Quinn, Schindler, & Toyoda, 2011; Villaverde & Maza, 2011).

The KOF globalisation index in 2016 consists of three component subindices: economic inte-

gration, political integration and social globalisation (see Table 1). The largest component is the

social globalisation subindex (37%), which consists almost entirely of technology related variables

(telephone traffic, transfers, international letters, internet users, television, trade in book and news-

papers) as well as variables that increase with technology through reduced costs of transportation

and communication (foreign population, international tourism, number of McDonald’s restaurant s

and number of IKEA stores). So, the social globalisation subindex is increasing in open countries

for reasons related to technology, not trade policy. The political subindex of the KOF globalisation

index includes four components: embassies in a country, membership in international

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According to the Google Scholar records, there are 1,748 citations to the seminal paper of Dreher (2006) up to July 2017.

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For example; the CSGR globalisation index, the global index, the A.T. Kearney & Foreign Policy magazine globalisation

index, and the Maastricht globalisation index. See Potrafke (2015) for the details and related references. According to

Potrafke (2015), the KOF index is superior to other measures of globalisation, and there are mainly three advantages of the

index. First, the KOF index of globalisation considers all aspects of globalisation (economic, political and social). Second, it

consists of a large number of countries and the time coverage. The 2016 version of the index includes the data for 207

countries over the period 1970–2013. Third, the data set for the index is updated annually; and therefore, it introduces a

comprehensive panel data set.

DOI: 10.1111/twec.12546

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/twec World Econ. 2018;41:414–430.

organisations, participation in UN Security Council missions and international treaties. Coun tries

rarely withdraw membership in international organisations, so that variable is by definition increas-

ing over time. The other three components might be increasing or decreasing, but they are related

to political regimes, which have not so much been changed since 1990.

TABLE 1 Details of the KOF globalisation index in 2016

Indices and variables Weights (%)

1. Economic globalisation 36

(i) Actual flows 50

Trade (percentage of GDP) 22

Foreign direct investment, stocks (percentage of GDP) 27

Portfolio investment (percentage of GDP) 24

Income payments to foreign nationals (percentage of GDP) 27

(ii) Restrictions 50

Hidden import barriers 23

Mean tariff rate 28

Taxes on international trade (percentage of current revenue) 26

Capital account restrictions 23

2. Social globalisation 37

(i) Data on personal contact 33

Telephone traffic 26

Transfers (percentage of GDP) 2

International tourism 26

Foreign population (percentage of total population) 21

International letters (per capita) 25

(ii) Data on information flows 35

Internet users (per 1,000 people) 36

Television (per 1,000 people) 38

Trade in newspapers (percentage of GDP) 26

(iii) Data on cultural proximity 32

Number of McDonald’s restaurants (per capita) 46

Number of IKEA (per capita) 46

Trade in books (percentage of GDP) 7

3. Political globalisation 27

Embassies in country 25

Membership in international organisations 27

Participation in UN Security Council missions 22

International treaties 26

Data Source: Dreher (2006), and Dreher et al. (2008) KOF Index of Globalisation, Available at: http://globalisation.kof.ethz.ch/med

ia/filer_public/2016/03/03/variables_2016.pdf.

GOZGOR

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