A new index of globalisation: Measuring impacts of integration on economic growth and income inequality

The debate over globalisation has intensified over the past decade. Recognition that globalisation comes with grave risks has garnered political support for regionalism as a strategy to build economic and financial resilience. This study is the first attempt to develop a new composite index of globalisation building on the separate contributions of intraregional and extraregional integration. The study also uses the new index to evaluate empirically the possible effects of globalisation on economic growth and income inequality. The index comprises 25 indicators that represent the key socioeconomic components of global integration. Principal component analysis is used to weight each component and construct an aggregate measure. The results show that although globalisation promotes economic growth, it may worsen income inequality. High-income countries benefit most in that the positive effect of globalisation on economic growth is strongest among them than on other income groups, and they experience a less-pronounced widening of income inequality. Between the two drivers of global economic integration, intraregional integration is far more important than extraregional integration. The analysis also shows extraregional integration turns out to be mainly responsible for the rise in income inequality that has accompanied globalisation.