Measuring Degree of Globalization of African Countries on Almost Equimarginal Contribution Principle

Abstract

This paper is an exercise in construction of an alternative globalization index for 43 countries in Africa. It has used a new method for measurement of the degree of globalization (or construction of a globalization index) based on minimization of the Euclidean norm of the Shapley values, the concept borrowed from the cooperative game theory. It assigns weights to constituent variables such that their mean expected marginal contribution to the synthetic index is as equitable as possible. Since this index is based on combinatorial logic, it is also less likely to be affected by outlier data points. Globalization index for 43 African countries (for a time series of 45 years, 1970-2014) has been constructed. The new index has been compared with the KOF index of globalization for the countries under study. As its validation, it has been found that the index has stronger correlation (vis-à-vis the KOF index) with Human Development index, Corruption Perception index, Freedom index and the indicators of abject poverty in the African countries. Viewed as such the new index represents globalization closely in connection with other relevant socio-economic measures than its rival (KOF index of globalization) as well as it is based on more plausible theoretical premises based on marginal contribution rather than correlation.

Keywords: Globalization, synthetic index, African countries, Shapley values, Equi-marginal contribution

JEL Classification: C43, C71, F02, F60, O55