This paper introduces two composite indices of globalisation. The first is based on the Kearney/Foreign Policy magazine and the second is obtained from principal component analysis. They indicate the level of globalisation and show how globalisation has developed over time for different countries. The indices are composed of four components: economic integration, personal contact, technology and political engagement, each generated from a number of indicators. A breakdown of the index into major components provides possibilities to identify sources of globalisation at the country level and associate it with economic policy measures. The empirical results show that a low rank in the globalisation process is due to political and personal factors with limited possibility for the developing countries to affect. The high ranked developed countries share similar patterns in distribution of various components. The indices were also used in a regression analysis to study the causal relationships between income inequality, poverty and globalisation. Inequality is negatively correlated to globalisation, and globalisation reduces poverty.
Globalisation' has become a way to describe changes in international economy and in world politics. It is defined as the free movement of goods, services, labour and capital across borders. Globalisation is a result of reduced transportation and communication costs, lower trade barriers, faster communication, rising capital flows, increased competition, standardization, and migration to mention a few key causal factors. The process has brought the developed economies closer together and made them more strongly interrelated. In the new era of growing integration of economies and societies, individuals and corporations reach around the world further, faster, and more economically than before. This subjects states and individuals to more intense developed market forces by causing rapid changes in trade relations, financial flows, and the mobility of labour across the world. However, there is a large heterogeneity in the degree of the process of globalisation over time and across countries and regions and also within countries. This heterogeneity causes disparity in development, especially in the negative effects such as rising inequality within and between countries, and urges the need to find the sources of disparity and the quantification of its magnitude and impacts on the living conditions of the world population.
In recent years, theoretical research on the link between globalisation and world inequality and poverty has been intense. However, analysis of the link at the empirical level is scarce. Globalisation generally is expected to reduce poverty through faster growth in more integrated economies. Extensive empirical research on the causal connections between globalisation and inequality in developing nations during the preglobalisation phase show that there is no structural relationship between growth and inequality, and income inequality levels were generally immobile and trendless. Despite the great importance that in recent decade is placed on the globalisation process, its sources and consequences remain poorly understood. The channels through which globalisation affect world inequality have been identified as commodity price equalisation, factor price convergence, capital mobility and differentials in marginal products and rates of return of capital among countries, and dynamic convergence in per capita income growth.
The objective of this study is to investigate the usefulness of two indices of globalisation (Kearney and principal component analysis based) to compare a large sample of industrialised, transition and developing countries by their integration in the world economy. The two indices each are based on the countries' economic integration, personal contact, technology and political engagement. A decomposition of the indices into underlying components quantifies the individual factors' contribution to the integration. In addition to investigating the international level of globalisation, the indices are used for between and within region comparisons. The indices are expected to serve as useful tools in the evaluation of the impact of globalisation on the welfare of nations and regions. They are used in regression analysis to study the causal relationship between income inequality, poverty and globalisation.
Rest of the paper is organised as follows. In Section i the literature on different perspectives on globalisation, the links between globalisation and inequality and poverty, and measures to reduce its negative impacts is reviewed. In Section i the Kearney and principal component composite indices of globalisation is introduced. The data is described in Section f. Results on variations in the two globalisation indices, ranking of countries and regions by degrees of globalisation and development of globalisations over time is discussed in Section O. Results from regression analyses of the impacts of globalisation on income inequality and poverty are discussed in Section 7 and V, respectively. Section A. summarises the findings.
2. A REVIEW OF THE LITERATURE
Waves of giobalisation and its links
Globalisation has its roots in the second half of the eighteenth century. The period 1870 - 2000 is classified into: the first wave of globalisation 1870-1930, the de-globalisation period of 1913-1950, the golden age of 1973 qvr, and the second wave of globalisation of 1973 onwards (see O'Rourke and Williamson 2000, O'Rourke 2001; Maddison; Williamson; and World Bank Development Research Group). The empirical evidence shows that during the first wave of globalisation convergence in per capita income and real wages took place within the Atlantic economy. The de-globalisation period is characterized as a widening disparity between the richest and the poorest regions, and within the Atlantic economy. The golden age was a period of rapid growth, relative stability and declining inequality. For more details see Solimano (2001).
A literature on various aspects of the recent wave of globalisation is developing. Several special issues on globalisation have been published in Oxford Development Studies, Journal of World-Systems Research and Journal of African Economies. Editorial introduction to these special issues are provided by Woods , Manning , Bata and Bergesen (2002a,2002b), and Bevan and Fosu (2003). In addition, a number of books on the issue have been published by the academic press. Dollar and Collier and the World Bank Development Research Group explored the relationship between globalisation, growth and poverty; James analysed technology, globalisation and poverty, while Aghion and Williamson nqqfl.) examined the relationship between globalisation, growth and inequality, focusing on history and policies. Khan and Riskin studied the globalisation, growth, inequality and poverty issues but limited their study to the development in China. O'Rourke and Williamson (2001) look at the evolution of the qth century Atlantic economy, and Tousch and Herrmann (2000) analysed globalisation and European integration.
The links between giobalisation and inequality
In recent years, research on the link between globalisation and world inequality has been intense. Economic growth has often been given priority as an anti-poverty measure, while the negative links between growth and inequality have been largely ignored by policy makers. Cornia and Court (2001), in a policy brief covering the second wave of globalisation, highlight five main issues. First, inequality has risen since the early-mid )qfI.·s. Second, the traditional common factors causing inequality, such as land concentration, urban bias and inequality in education, are not responsible for worsening the situation. Third, the persistence of inequality at high levels makes poverty reduction difficult. Fourth, a high level of inequality can depress the rate of growth and have undesirable political and social impacts (see also Birdsall, 2000). Fifth,developments in Canada and Taiwan show that low inequality can be maintained at a fast growth rate.
The non-traditional new causes of inequality are identified as liberal economic policy regimes and the way in which economic reform policies have been carried out. Land reform, expanding education and active regional policy are recommended as measures to reduce inequality. The new development approach called the 'Post-Washington Consensus' (Stiglitz, 1998) includes measures to offset the impacts of new technologies and trade, macroeconomic stability, careful financial liberalization and regulation, equitable labour market policies, and innovative tax and transfer policies.