DHL Global Connectedness Index 2014

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74 5. DHL Global Connectedness Index Methodology 5. DHL Global Connectedness Index Methodology
DHL Global Connectedness Index 2014 75 This chapter explains how the DHL Global Connectedness Index was constructed and describes the rationale for key methodological decisions. For a list of data sources employed and additional technical notes, please refer to Appendix B. This explanation proceeds in five parts. First, it describes the selection of a set of specific aspects of the broad phenomena of global connectedness that are covered in the index. Second, it defines quantitative metrics for the measurement of each of these aspects of connectedness. Third, it identifies gaps in the availability of the data required to calculate those metrics, and discusses how such gaps were addressed. Fourth, it describes how these diverse metrics were made comparable before they were combined into the index (“normalization”). Fifth, it explains the aggregation and weighting mechanisms via which the metrics were finally combined into the index. Throughout this chapter, the example of the Netherlands (the top ranked country on the 2014 DHL Global Connectedness Index) will be used to illustrate the calculations that were performed to generate the index. The methodology used to calculate the 2014 DHL Global Connectedness Index remains largely unchanged versus previous editions, with the notable exceptions of two significant methodological enhancements. First, portfolio equity depth is now computed in relation to countries’ stock market capitalization rather than their GDP, as described in Section 2 of this chapter. Second, breadth data are now screened for adequate coverage ratios, as described in Section 3 of this chapter. The data used to compute the index have also been completely updated both to extend the results up to 2013 as well as to incorporate revised source data for prior years. 1. Selecting Aspects of Connectedness to Measure Global connectedness is a multifaceted phenomenon incorporating many types of connections, so its measurement necessarily requires one to proceed from a specific definition of the phenomenon to the selection of a set of underlying metrics that will be included in its assessment. For the purpose of constructing the DHL Global Connectedness Index, the starting point is the following definition of global connectedness: GLOBAL CONNECTED- NESS REFERS TO THE DEPTH AND BREADTH OF A COUNTRY’S INTEGRATION WITH THE REST OF THE WORLD, AS MANIFESTED BY ITS PARTICIPATION IN INTERNATIONAL FLOWS OF PRODUCTS AND SER- VICES, CAPITAL, INFORMATION, AND PEOPLE. As this definition implies, connectedness is measured here based on actual flows that take place between and among countries. Depending on relevant time frames and data availability, some flows are measured directly in the current year while others are measured based on stocks cumulated from prior year flows. The focus on actual flows is motivated by the sense that while connectivity or the technical potential for connectedness has improved a great deal thanks to changes in transportation and communications technologies, actual levels of flows significantly lag that potential. This focus also allows the index to be generated based solely on hard data, which makes it ideal for dispelling myths about globalization (“globaloney”). Furthermore, by focusing the index itself on actual flows, enablers of connectedness (such as the political variables covering tariffs, embassies, and so on, included in other globalization indexes) may be analyzed separately in relation to the index (since they are not mixed into the index along with the actual flows). This is intended to make the index more useful for policymakers seeking insight into how to foster the aspects of connectedness that they deem
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Pankaj Ghemawat and Steven A. Altma
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DHL GLOBAL CONNECTEDNESS INDEX 2014
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286 Appendix B - Data Sources, Regr
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288 Appendix B - Data Sources, Regr
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Praise for the DHL Global Connected
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DHL Global Connectedness Index 2014

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