The Architecture of Globalization

Jun 28, 2007

Using recent advances in the study of networks, two University of Arkansas economists suggest alternative measures of international economic integration, popularly referred to as globalization. Rather than focusing on trade levels of individual countries, the new measures consider the pattern of linkages that tie together countries around the world.

"Despite greater interest in the issues of globalization, discussions are often handicapped by the dearth of appropriate measures to understand its nature and impact," said Raja Kali, associate professor of economics in the Sam M. Walton College of Business. "Most studies in the economics literature focus only on volume of trade. We combined a network approach with data on international trade linkages to examine the global trading system as an interdependent complex network."

A network approach enabled Kali and Javier Reyes, assistant professor of economics, to derive statistics that describe the structure and evolution of global trade in ways that existing measures do not capture, such as the number of actual and potential trading partners, the structure of regional trading, and the influence of individual countries and groups of countries on the whole network and specific regions.

While popular usage of the term "globalization" provokes strong and polarizing opinions across the world, such sentiments are usually associated with the effects, real or perceived, of what economists refer to as international economic integration. The increase in globalization that has characterized the last half-century has been associated with the spectacular economic performance and move out of poverty for large parts of the world. But globalization has also caused an increase in volatility of economic performance, reflected in several recent episodes of economic and financial crises. There is also a growing perception that the process of globalization has accelerated over the last decade and that the benefits and costs of increasing economic integration have not been evenly distributed across the world.

Kali and Reyes first mapped the topology of the international trade network with a view to understanding its structure and properties. Armed with such an understanding, they then suggested new measures of international economic integration, at both a local- or country-level and a global or systemwide level, that incorporate the structure and function of the network. These measures were used to examine economic integration along a number of different lines: geography, income and legal origin.

The exercise allowed the researchers to gain an understanding of whether global trade has become more integrated or balkanized. Using data on the network of international trade linkages in 1992 and 1998, Kali and Reyes constructed these measures for both years and examined how the network and thus globalization evolved over the 1990s.

Applying the new measures, the researchers discovered that at low levels of trade - countries that have a relatively low number of links to other countries - the global trading network had become much more integrated and homogeneous throughout the 1990s. In other words, the network acquired more participant countries with roughly the same number of trading partners. At higher levels of trade - the small number of well-connected countries - not much had changed from previous years. At this level, the network was much more hierarchical and heterogeneous, meaning it was dominated by a small core of highly developed economies - the United States, Japan and several European countries - with many links to countries with both high and low levels of trade.

Overall, the researchers found support for the hypothesis that a country's position in the network, based on all factors, including volume of trade, had substantial implications for economic growth. A country's position may also explain its reaction to a financial crisis. For example, with data from 1992, Kali and Reyes found that Thailand, a country at the center of the 1997-98 Asian financial crisis, ranked 22nd in terms of global trade share but 12th by their measure of network importance.

The researchers study has been published in the July 2007 issue of the Journal of International Business Studies.

Source: University of Arkansas

Explore further: Can science eliminate extreme poverty?

add to favorites email to friend print save as pdf

Related Stories

Invention loves collaboration at Milan show

Apr 14, 2014

Collaboration drove invention during Milan's annual International Furniture Show and collateral design week events, yielding the promise of homes without mobile phone chargers, and with more ergonomic seating, ...

Politics test Silicon Valley's Russian ties

Apr 13, 2014

Entrepreneurs and investors say Silicon Valley's fast-growing financial ties with Russia's tech sector are being slowed down by current political tensions between the White House and the Kremlin.

China looks to science and technology to fuel its economy

Apr 10, 2014

Maintaining stability in the face of rapid change and growth, and proactively partaking in cooperative global ties in science and technology fields will be key in helping China become an innovation-based economy, according ...

Recommended for you

Study finds law dramatically curbing need for speed

22 hours ago

Almost seven years have passed since Ontario's street-racing legislation hit the books and, according to one Western researcher, it has succeeded in putting the brakes on the number of convictions and, more importantly, injuries ...

Newlyweds, be careful what you wish for

Apr 17, 2014

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

User comments : 0

More news stories

Health care site flagged in Heartbleed review

People with accounts on the enrollment website for President Barack Obama's signature health care law are being told to change their passwords following an administration-wide review of the government's vulnerability to the ...

Airbnb rental site raises $450 mn

Online lodging listings website Airbnb inked a $450 million funding deal with investors led by TPG, a source close to the matter said Friday.