What is "Globalization"?

It’s a simple question, but I think that the answer may be less obvious than one might think. “Globalization” doesn’t simply mean more international trade. It doesn’t simply mean traveling more, or having better international internet connections. It doesn’t simply mean having more cross-border investment flows. Rather, it is some amalgam or all of these phenomena, and many more besides.

I was reminded of this question by a CESifo working paper that I just read called “Metrics Capturing the Degree to Which Individual Economies are Globalized” (by Riezman, Whalley, and Zhang, April 2005.) The constant barrage of stories on my NPR station this week about globalization (part of public radio’s “Think Global” project) has also helped to move this topic to the forefront of my mind right now.

Typical measures of “globalization” try to identify the quantity of contacts between a country and the rest of the world. For a prime example, see the A.T. Kearney/Foreign Policy Magazine Globalization Index 2005, which explicitly measures political, economic, personal, and technological contacts between countries.

On the other hand, the CESifo paper comes from a slightly different analytical perspective. They ask the following question: how far is any particular economy from a state of “total globalization”? By “total globalization,” the authors mean a complete absence of transaction barriers with the rest of the world.

Asking the question this way makes an important point: the opposite of globalization is national bias. In an economy that is perfectly globalized, all types of interactions with people in different countries are no more difficult, and no less common, than interactions with people in one’s own country. In an economy that is less than perfectly globalized, on the other hand, there is a bias (which among other things could be political, technological, informational, or personal in nature) that encourages a disproportionate amount of interaction with people in one’s own country.

This makes for an interesting way to think about the process of globalization. In a sense, it’s the process of eliminating national bias.