Abstract
Abstract. The present study proposes an alternative method to construct an index of globalization which is based on the principle of almost equi-marginal contributions (AEMC) or Shapley values of the constituent variables to the overall index rather than the correlation coefficients among the constituent variables and the overall index (the KOF index based on the principal component scores). This has been done by minimization of the Euclidean norm of the Shapley values of the constituent variables. As an exercise, secondary time series data (1970-2013) on the measures of globalization in three different dimensions (economic, social and political) of three economies (China, India and Pakistan) have been used. A comparison of the AEMC index with the KOF index reveals that while the former is more inclusive, the latter is more elitist in matters of inclusion of the weakly correlated constituent variables in the overall (composite) index. As a consequence, the AEMC index is more sensitive than the KOF index of globalization. Both indices capture the trends in globalization in the countries under study and are highly correlated between themselves. Thus, AEMC is an alternative or perhaps a better method to construct composite indices.
Keywords. Globalization, KOF index, Equi-marginal, Shapley value, Global optimization, China, India, Pakistan.
JEL. C43, C61, C71, F60, P52.
References
Andersen, T.M., & Herbertsson, T.T. (2005). Quantifying globalization. Applied Economics, 37(10),1089-1098. doi. 10.1080/00036840500118200
Bhandari, A.K., & Heshmati, A. (2005). Measurement of globalization and its variations among countries, regions and over time. IZA Discussion Paper No. 1578. [Retrieved from].
Caselli, M. (2012).Trying to Measure Globalization: Experiences, Critical Issues and Perspectives. Springer, Dordrecht.
Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091-1110. doi. 10.1080/00036840500392078
Dreher, A., Gaston, N., & Martens, P. (2008). Measuring Globalisation: Gauging its Consequences. Springer. New York.
Grinin, L., Ilyin, I., & Korotayev, A. (2012). Globalistics and globalization studies. Journal of Glabalization Studies. Volgograd, Russia.
Hayek, F.A. (1944). The Road to Serfdom. Routledge, London.
Hayek, F.A. (1988). The Fatal Conceit: The Errors of Socialism. Routledge, London.
Kakar, Z.K., Khilji, B.A., & Khan, M.J. (2011). Globalization and economic growth: Evidence from Pakistan. Acta Universitatis Danubius, 7(3), 208-217.
Mishra, S.K. (2013). Global optimization of some difficult benchmark functions by host-parasite coevolutionary algorithm, Economics Bulletin, 33(1), 1-18.
Mishra, S.K. (2016). A note on construction of a composite index by optimization of shapley value shares of the constituent variables. Turkish Economic Review, 3(3), 466-472.
Mishra, S.K., & Kumar, B. (2013). Disparities in globalization of the world economies. The NEHU Journal, 11(1), 1-17.
Mishra, S.K., & Nayak, P. (2006). Socio-economic dimensions of globalization in India. Journal of Managerial Economics, 5(1), 63-80.
OECD, (2005). Measuring Globalisation: OECD Handbook on Economic Globalisation Indicators. [Retrieved from].
Roth, A.E. (1988). The Shapley Value. Cambridge Univ. Press, New York.
Xue, J., Luo, C., & Li, S. (2014). Globalization, liberalization and income inequality: The case of China. Singapore Economic Review, 59(1), 1-21. doi. 10.1142/S0217590814500027
Yoganandan, G. (2010). Globalisation of Pakistan: Lessons for politically unstable countries. International Journal of Marketing Studies, 2(1), 133-139. doi. 10.5539/ijms.v2n1p133
Zubok, V.M. (2009). A Failed Empire: The Soviet Union in the Cold War from Stalin to Gorbachev. Univ of North Carolina Press. NC, USA.
