Measuring Spatial Extension of Economic Globalization

Abstract

Is the economy really globalizing? Economic globalization is not only characterized by increased trade flows but also by increased interweavement of trade flows. To analyze the evolution of globalization in different macro- geographic regions a new inequality measure based on a paradigmatic interpretation of Boltzmann’s entropy will be applied. Boltzmann’s interpretation of entropy is based on disorder of a thermodynamic system. The greater the disorder within the system, the higher is the entropy of the system. The concept of thermodynamic entropy can be re- interpreted figuratively as risk of an economic system by creating an economy- genotypic risk inequality measure covering the spatial nature of globalization; the greater the disorder (i. e. equality) within the system, the lower the risk within the economic system. Due to the fact that thermodynamic systems are evolving naturally to the state of higher entropy, we can take the dualistic view that economic systems are evolving naturally to a state with lower risk. This leads finally to the enouncement of the Central Theorem of Globalization covering the spatial nature of economic globalization decisions. By substituting the pole of statistics variance (i. e. the mean) with the inequality measure, we get a measure of the risk level for the economic trade system, resulting in a statistics based interpre- tation of entropy. Therefore, by measuring the spatial concentration of trade flows, we get the risk of the trade flow matrix. By adding the concept of thermo- dynamic enthalpy to the economic system, we can also explain the presence of an eventual de-globalization trend (i. e. an increased order of the economic sys- tem corresponding to an increased inherent economic risk of the system). This matches the fundamental economic law that a higher risk corresponds generally to a higher return. The paper analyzes the WTO trade figures (type 1 globalization) between 2003 and 2009 with regard to the different evolution of globalization within the macro-geographic economic regions. The new economic interpretation of en- tropy allows not only to quantifying the globalization degree of an economic sys- tem, but with its genotypic nature, it also allows to give an explanation to the globalization phenomenon. In addition, it can also be applied to quantify the globalization level of FDI (Foreign Direct Investment, i. e. type 2 globalization) or to quantify the globalization level of migration flows (type 3 globalization) as well as to be applied to judge the risk of product composition of supply (or demand) of a national economy.