Globalization and the Crypto Market: Do They Influence One Another?

KOF Globalisation Index (KOFGI)

The KOFGI is a composite index that measures globalization along the economic, social and political dimensions for almost every country in the world, based on a scale of 1 (least) to 100 (most globalized). The index spans from 1970 to the most current year. The data is updated annually.

The original index was introduced by German economist Axel Dreher in 2006 at the Konjunkturforschungsstelle of ETH Zürich, and updated two years later. Recently, the index was completely overhauled and expanded with new features and variables.

The revised and updated KOFGI distinguishes between de facto and de jure measures for each of the different aspects of globalization. While de facto globalization measures actual international flows and activities (such as trade in goods and services), de jure globalization measures policies and conditions (such as tariffs) that, in principle, affect these flows and activities. Within the economic dimension of globalization, the revised KOFGI now distinguishes between trade and financial globalization.

Furthermore, it introduces time-varying weighting of the underlying variables, allowing the underlying relationship to gradually change over time. Overall, the index is based on 43 different variables that are aggregated into the different dimensions and the overall index. Incorporating a total 27 different indices, users can choose the level of aggregation most relevant for their respective purpose.

The KOFGI also affirms the path of globalization observed over the last several decades, as measured by the Trade Openness Index. According to the KOFGI, globalization accelerated since the beginning of the 1990s, as the Soviet Bloc collapsed and the former socialist countries began transitioning to standard market economies.

Moreover, according to the KOFGI, we can observe that “slowbalization” started right after the global financial crisis of 2008–2009, while after the Covid crisis, the globalization process has effectively halted. This is observable in both components to the KOFGI—meaning both de jure and de facto terms.

Frankel Index (FI)

This specialized globalization measure was introduced by American economist Jeffrey Frankel at the turn of the 20th century. He devised a very simple yet insightful index to assess not only the extent but also the path of globalization.

The import version of the FI is a ratio that relates a country’s import share of GDP to the rest of the world’s GDP in global GDP. For example, if a country imports 30 percent of its GDP, and the rest of the world’s GDP is 80 percent of global GDP, the FI would be calculated as 30 percent÷ 80 percent, or 0.375.

If a country’s residents buy from foreigners as easily as they buy from domestic suppliers, then foreign products would represent the same share in that country’s spending as spending by citizens from the rest of the world. With complete globalization, a country’s import share of GDP should equal the share of the rest of the world’s GDP in global GDP—in other words, the FI should equal 1.0. That means: the higher a country’s FI, the more integrated it is with the global economy—or “more globalized”. Except for small open economies, such as Singapore, with very high trade ratios, the FI value is typically well below 1.0. In fact, the index consistently declines as a country’s share of world GDP rises.

Since 2000, FI values have generally increased due to China’s emergence as a trading power. German economist Rolf Langhammer sampled more than 100 countries to examine the evolution of FI values over time (1990, 1995, 2000, and 2005). Langhammer’s analysis revealed a pattern of smaller FI values for larger countries (measured by GDP) in a given year, but rising FI values over time for the great majority of countries—along with some degree of convergence in globalization between large and small economies.

The Frankel Index also shows that globalization has increased since 1990. The Peterson Institute for International Economics presents the change of FI data from 1990 to 2023 using the sample of 68 countries, as well as separate groups of 35 high-income countries and 33 middle-income countries. All three samples demonstrate that globalization has increased, although at slightly different paces across each group of countries (see Figures 3, 4, and 5).