(icmef 2012) proceeding developing standardized economic drivers f

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INTERNATIONAL CONFERENCE ON MANAGEMENT, ECONOMICS
AND FINANCE (ICMEF 2012) PROCEEDING
15 th - 16 th OCTOBER 2012. HILTON HOTEL, KUCHING, SARAWAK, MALAYSIA
ISBN: 978-967-5705-09-0. WEBSITE: w w w . g l o b a l r e s e a r c h . c o m . m y
1. INTRODUCTION
All countries in the world are increasingly interested in the position and potentials of their economies in
the period of globalization. These interests are supported by studies that show that countries that
actively participate in the globalization processes will achieve higher positive effects of globalization.
According to Hirst and Thompson, (1992), globalization will increase in volumes of trade, increase
volumes of foreign direct investment (Koechlin, 1995), increase volumes of trading in world’s foreign
exchange markets (Helleiner, 1994) or reduce transportation and communication cost (Krugman and
Venables, 1995). Globalization causes rapid changes in trade relations, financial flows, and the mobility
of labor across the world and has brought the (developed) national economies closer together and
made them more strongly interrelated.
Active participation in globalization will increase the possibilities for higher economic growth and
welfare. The framework of these conditions depends upon the theoretical concept of global economy.
The term globalization is used in many different contexts. Indeed it has become a buzzword with a
multitude of meanings and interpretations. Some researchers, who study globalization, define global
economy by means of the indicators of international integration of markets, such as international trade,
foreign direct investment, activities of transnational companies, international flows and information
communication technology (Kearney, 2004; Lockwood, 2001; Andersen ad Herbertsson, 2003; Dreher,
2003; Heshmati,2006).
Globalization is a true phenomenon by which market and production in different countries are
becoming increasingly interdependent due to the dynamics of trade in goods and services and the flows
of capital and technology (Brinkman, 2002). This definition is supported by IMF, Kumar (2003) and
Robert (2002), who defined globalization as, “the growing economic interdependence of countries
worldwide through the increasing volume and variety of cross-border transaction in goods and services
and of international capital flows, and also through the more rapid and widespread diffusion of
technology.” In the broadest sense, Kiggundu (2002) and Friedman (2005) defined the term of
globalization as, “a cross-border flow of goods, commodities, information and knowledge,” or in other
words, it is economic globalization that involves relatively unrestricted flow of materials, goods,
information and capital across national borders.
2. LITERATURE REVIEW
A large number of empirical studies have made use of a variety of variables to test the globalization of
economics. Perhaps due to difficulty in measuring globalization, different researchers have used many
different measures to examine the level of globalization by using a few indicators such as economics,
social and political. Are some indicators more significant indicators than others? We don’t have an
accurate answer. It is depending on how you define the term of globalization and what you are looking
for in your study. For example, the World Bank (1996) has developed a “speed of integration index”
based on FDI to- GDP ratio, trade to GDP ratio, institutional Investor credit ratings and manufacturing
exports as a share of exports. This index is formulated to measure the speed of integration by taking the
simple average of the changes in these four indicators (expressed as standard scores) over the sample
period. Taking a slightly different approach, Ismihan (2008) developed a single composite indicator
which measures the relative level of integration of a particular domestic economy to global economy in