DHL Global Connectedness Index 2014

86 5. DHL Global Connectedness Index Methodology
Figure 5.3. Comparison across Globalization Indexes:
Weights Assigned to Actual Flows/Stocks versus Technological
Connectivity and Policy Enablers
Figure 5.4. Comparison across Globalization Indexes:
Weights Assigned to Aspects of Globalization
Measured (matching GCI pillars where possible)
100%
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DHL GCI E&Y MGI KOF
DHL GCI E&Y MGI KOF
Actual Flows/Stocks Technological Connectivity Policy Enablers
Trade Capital Information People Environment
Culture Politics Policies on Trade, Investement, Migration
E&Y and MGI use indicators that we cover on the people
pillar (e.g., tourism) as measures of cultural globalization.
KOF incorporates more narrowly focused cultural variables,
e.g., numbers of IKEA stores and McDonalds restaurants
per capita. However, we question whether those variables
might be too narrow. Thus, McDonalds restaurants account
for less than 0.3% of all the meals sold in the world—a figure
that’s decreasing—and are outnumbered even in America by
meals at Chinese restaurants. Overseas, McDonalds has had
to generate a dizzying array of product adaptations to appeal
to local tastes (ranging from eliminating all beef products
in India to putting spaghetti on the menu in the Philippines
and Caldo Verde soup in Portugal).
Importance-Based Weighting Scheme
Another reason why the DHL Global Connectedness Index
is more sensitive to changes in the intensity of trade and
capital flows is its weighting scheme. Figure 5.4 compares
the weights used by other indexes with those assigned to the
pillars of the DHL Global Connectedness Index. Weights
that other indexes assign to topics that are also covered by
our index are shown below the lines that connect the bars,
and topics that other indexes cover but we do not are above
those lines.
The differences in weighting schemes are striking. The KOF
index, for example, assigns less than 4% of its overall weight
to actual trade flows. It assigns a larger weight to income
payments to foreign nationals than to trade, even though
trade flows are at least 5 times larger. Why such stark differences
KOF derives its weights based on a statistical method
designed to maximize the variation captured from its raw
data. While that method does have theoretical appeal in that
it removes human judgment from the process, it can generate—and
in our view has generated—weights that do not
reflect the relative importance users—particularly business
and economic policy users—of an index might attach to
aspects of the phenomenon of globalization.
Both the DHL Global Connectedness Index and the E&Y
Globalization Index use weights that reflect subjective judgments
about the relative importance of distinct aspects of
globalization—ours as described earlier in this chapter and
E&Y’s based on a survey of business executives. E&Y’s sample
of business leaders assigned a 22% weight to trade, 21%
to capital and finance, 21% to exchanges of technology and
ideas (information), and 19% to movement of labor (people),
and 17% to cultural integration, weights that correspond
more closely to those used on the DHL Global Connectedness
Index than those generated by the KOF index’s statistical
method. 7
Timeliness
The other indexes have significantly longer lags from when
a year ends to when they publish its results. This edition
of the DHL Global Connectedness Index is being released
in November 2014, based mainly on 2013 data (a lag of
11 months). 8 KOF is normally published with a 28-month
lag. E&Y has a 24-month lag relative to the hard data it
presents, but includes projections based on Economist Intelligence
Unit forecasts. MGI is published irregularly, but its
latest edition was released with a 16-month lag. 9
Hard Data Only
Finally, the DHL Global Connectedness Index is built up
exclusively from hard data. This contrasts with E&Y, which
incorporates subjective assessments, e.g., of appropriation
risk, generated by Economist Intelligence Unit analysts. The
exclusion of subjective assessments is designed to maximize
the index’s value as an antidote to globaloney. In the words
of the late Daniel Patrick Moynihan, “Everyone is entitled to
his own opinion, but not to his own facts.”