DHL Global Connectedness Index 2014

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32 2. How Globalized are Individual Countries and Regions outwards, while 70 had stronger inward connections. Figure 2.4 elaborates this pattern by ranking countries based on the difference between their outward versus inward connectedness scores. While disparities between inward and outward connectedness on the trade and capital pillars can sometimes indicate imbalances that can contribute to economic instability, it is important not to interpret these differences generally as indicators of dangerous imbalances. First of all, imbalances on the breadth dimension just mean that a country interacts with a more globally representative set of countries in one direction, while focusing more on particular partners in the other. Second, international flows of debt capital— the most dangerous flows in these terms because they must be repaid on specific dates—are excluded from the index. Third, while trade, FDI, and portfolio equity flows do directly impact future obligations, other components of the index do not. Inbound telephone calls, for example, apart from common courtesy, do not require future outbound calls. With those caveats in mind, note that the countries and territories with the largest imbalances in favor of outward connectedness are Cambodia, Sri Lanka, Islamic Republic of Iran, Taiwan (China), and Pakistan, while those with the largest imbalances in favor of inward connectedness are Jordan, Lebanon, Mongolia, United Arab Emirates, and Kyrgyz Republic. The countries with the most balanced connectedness between inward and outward directions are Uruguay, Madagascar, Panama, Luxembourg, and Malaysia. Depth Scores Relative to Estimates based on Structural Factors Higher depth scores on the DHL Global Connectedness Index have been associated with faster economic growth, and can also provide a wider range of benefits to countries as described in Chapter 4 of the DHL Global Connectedness Index 2011. The implication—that higher depth scores are better than lower—motivates this examination of how countries’ depth scores compare to what may be expected given their structural conditions. This section does not provide a parallel analysis of breadth scores because whether or not countries should strive to increase their breadth scores must be analyzed on a country-by-country basis. No general presumption can be made that higher breadth is always better than lower. Figure 2.5 plots countries’ actual depth scores (on the vertical axis) versus estimated depth scores based on their structural characteristics (on the horizontal axis). The structural characteristics (and regression coefficients) used to generate these estimates are those shown in the column labeled Depth (2) in Table B.4 in Appendix B: GDP per capita, population, remoteness, landlockedness, and linguistic commonality. Thus, we account here for the influence of country size and other variables that are known to affect the intensity of international interactions, and do so based on impacts that are derived from the data rather than arbitrarily pre-specified. The impact of the size of countries’ economies is decomposed into GDP per capita and population rather than simply GDP itself because of the different magnitudes of the effects associated with these factors. The countries that are farthest above the diagonal line are the countries that outperformed predictions based on their structural conditions the most, and the countries farthest below the line are the countries that underperformed the most. The 10 countries with the largest outperformance and underperformance are labeled. Prior to reporting the results of this analysis, however, it is important to recognize that “outperformance” and “underperformance” here are only relative to historically observed levels of globalization, not relative to potential
DHL Global Connectedness Index 2014 33 Figure 2.5 Actual Depth Scores versus Depth Scores Estimated Based on Structural Characteristics 50 45 Hong Kong SAR (China) Singapore Belgium Netherlands 40 35 Malaysia United Arab Emirates Actual Depth Score 30 25 20 Cambodia Vietnam Thailand Mozambique Greece Croatia Iceland 15 Uruguay Japan 10 5 Egypt, Arab Republic Venezuela, RB Central African Republic Syrian Arab Republic Iran, Islamic Republic 0 0 5 10 15 20 25 30 35 40 45 50 Estimated Depth Score based on Structural Characteristics The five countries and territories with the largest outperformance versus depth scores estimated based on their structural characteristics are all located in East and Southeast Asia: Malaysia, Vietnam, Cambodia, Hong Kong SAR (China), and Singapore. levels of globalization. The regression analysis is a descriptive exercise showing where different countries are in their globalization journeys. As Chapter 3 will elaborate, the world’s depth of global connectedness remains limited in absolute terms, with substantial headroom to grow. Even the Netherlands, the world’s most globally connected country and an outperformer relative to expectations based on its structural conditions, could still become more deeply connected. It ranks, for example, only 67 th on the depth of its inbound FDI flows and 96 th on outbound international students. The five countries with the largest outperformance versus structural estimates are all located in East and Southeast Asia (in descending order): Malaysia, Vietnam, Cambodia, Hong Kong SAR (China), and Singapore. Countries in this region tend to have particularly high scores on the trade pillar, which reflects their integration into cross-country supply chains. However, country level policies have also played important roles in boosting these countries’ depth scores. For a case study on how Vietnam, since 1989, leveraged deepening its international integration to rapidly grow from ranking as the second poorest country in the world up to middle income status, see Chapter 4 of the DHL Global Connectedness Index 2012. The remaining countries among the top 10 outperformers—Mozambique, Thailand, Belgium, the Netherlands, and United Arab Emirates—are more diverse along multiple dimensions. Mozambique is among the world’s poorest countries, with GDP per capita of only about $600 at market exchange rates, but ranked first worldwide on the depth of its 2011–2013 FDI inflows and is also in the top 30 on merchandise and services imports depth. Those high ranks reflect Mozambique’s strategy of inviting foreign participation in mega-projects, particularly in natural resources and infrastructure. 5 Thailand is another Southeast Asian country sharing many characteristics with the
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286 Appendix B - Data Sources, Regr
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288 Appendix B - Data Sources, Regr
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DHL Global Connectedness Index 2014

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