Critical Analysis of the KOF index

How do we measure globalization?

The KOF index is published by Swiss Federal Institute of Technology Zurich, and measures globalization from social, economic and political dimension. The KOF index is presented in a scale from 1 to 100, where greater number represents a more advanced globalization. Each dimension is subdivided with factors and their percentiles add up to 100. Each factor has a range of variables. which also add up to 100%.

In the dimension of economy, based on long-distance flow of goods, capital and services, is subdivided into actual flows and restrictions. Data is collected based on trading, foreign direct investment and portfolio investment as variables. Restrictions include hidden import barriers, mean tariff rate, taxes on international trade and index of capital controls. A nation that is more restricted on imports and exports is less globalized. The social dimension is categorized into personal contact, information flows and cultural proximity. The first two are calculated based on transfer payment, incoming and outgoing tourism, international telecom traffic, proportion of internet users, volume of foreign newspaper traded. Cultural proximity is particularly measured with level of foreign infrastructure installed in local society, such as the number of McDonald's and IKEA in a nation per capita. Last but rather important, membership of international organization is considered the most essential in the political dimension of KOF index. Globalization is also measured politically with the number of embassies in a country, international treaties signed by a country and participation in the UN Security Council Missions.

The KOF index is most widely accorded but also very controversial. It has a great range of 23 variables and data collected from 187 countries across the globe. The intensity, extensity and velocity are measured to a great extent with transparent methodology. However, some argued that KOF index does not exactly measure globalization but rather internalization, because one of the fundamental ideas, "supra-territoriality", is not included. It is also obvious that small countries, such as Luxembourg, Belgium, Ireland and Switzerland, dominate the ranking, which generates bias in the geographic world. Larger economies, such as Britain, China and the US, are relatively less globalized with KOF measures. The tough measure of cultural proximity needs to be taken into more consideration because the numbers of McDonald's and IKEA are not the only outcomes but dominating the percentile. American pop songs have greater influence on other parts of the world than books. Some also believed that extensity and velocity are not well-measured because regionalization, interaction across distance, speed of transactions and trade, and of international movement of people are not measured in any form. The other division that is not measured is the direction of globalization, which is actually a 2-way process. For example, not only McDonald's can be found in many other parts of the world, Thai, Japanese and even Ethiopian restaurants have been opened in the US and Europe through the same process.

In contrast to KOF index, the Maasstricht Globalization Index (MGI) includes environmental dimension, which plays an important rule and is measured explicitly. MGI also provides the information of policy choices, history, economic structure and physical geography of a nation within its published data, which makes the comparison between countries more extent and understandable. These exogenous factors affect the accuracy of measure of globalization, which is considered by MGI, but not KOF.