The new Globalization Index instituted by Ernst & Young in cooperation with the Economist Intelligence Unit (EIU) indicates that Singapore and Hong Kong are the top 2 most globalised economies, respectively.
The report measures and tracks the performance of the world's 60 largest countries according to 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration.
According to the report, smaller countries dominate the top of the Index, measured by their integration in the global economy, because they generally rely more heavily on international markets for their growth and economic prosperity. Larger states, by contrast, are better able to fall back on their respective domestic markets.
Unsurprisingly, the Index is headed by Singapore, which is highly dependent on international trade: aggregated imports and exports equate to over 300% of the city state’s GDP. But the report says this has left the city state highly exposed during a global economic crisis that has disproportionately harmed trade flows. Its GDP suffered a 9.5% year-on-year contraction in the first quarter of 2009, and the country’s level of globalisation is likely to remain flat for several years as a result.
Although Singapore’s policy choices are limited, the government has been able to lessen the pain by subsidising employment, and over the longer term, by broadening its economy into higher-value pharmaceuticals and medical equipment sectors that are likely to be less punishing in a future global slump. In all, globalisation has served the state well, even if bad times are unavoidable, and GDP had already stabilised by the end of 2009.
Hong Kong, a special administrative region (SAR) of China, also has a high trade element in its overall listing. Other highly globalised states have made particularly good use of technology. Meanwhile, no G7 economy appears in the top 10: the UK sits at 15th and Germany at 16th, with the US at 24th. The two largest BRIC economies, China and India, appear 40th and 46th, respectively.
The Globalisation Index points to two major trends:
1. Globalisation has reversed, but only briefly
The financial crisis has put the brakes on globalization. But as the economy recovers, the Index predicts that the globalisation rate will once again resume, although at a slower pace than earlier in the 2000s.
2. Technology will remain the main driver of globalisation
Without technological innovations such as mobile telephony and the internet, globalisation in its current form would not have been possible, says the report. As globalisation picks up from 2010, it will be the spread of technology that once again provides the main impetus behind greater integration.