Global Cooperation

Globalization has rallied and is even working better - new report

While there are threats to globalization, the report says, there is limited evidence of a fracturing of the world economy into rival blocs.

While there are threats to globalization, the report says, there is limited evidence of a fracturing of the world economy into rival blocs. Image: Pexels/Andrea Piacquadio

Ian Shine
Senior Writer, Forum Agenda
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  • Data on international flows of trade, capital, information and people strongly rebuts the notion that globalization has given way to deglobalization.
  • The latest DHL Global Connectedness Index sees the resilience of global flows as a strong foundation for ‘re-globalization’, in which globalization is reformed to make it work better for everyone.
  • While there are threats to globalization, the report says, there is limited evidence of a fracturing of the world economy into rival blocs.

The End of History arrived around 1990, according to the famous book by political theorist Francis Fukuyama. Over 30 years later, it seems that everyone is declaring the end of globalization.

Whether Fukuyama was right has been the subject of debate ever since, and whether those heralding the dawn of deglobalization are right should be up for debate too, according to the latest DHL Global Connectedness Index, authored by Steven A. Altman and Caroline R. Bastian of the New York University Stern School of Business.

It examines international flows of trade, capital, information and people, and says they “have proven remarkably resilient through recent crises, and … strongly rebut the notion that globalization has given way to deglobalization”.

The latest DHL Global Connectedness Index sees the resilience of global flows as a strong foundation for ‘re-globalization’.
The latest DHL Global Connectedness Index sees the resilience of global flows as a strong foundation for ‘re-globalization’. Image: DHL Global Connectedness Index 2022.

The Index even goes as far as to say that this resilience is providing a basis for “re-globalization”, which it defines as “reforming globalization to make it work better, expanding its pool of beneficiaries and better managing its challenges”.

This chimes with historian Adam Tooze’s prediction at the World Economic Forum’s Annual Meeting at Davos in 2023, that we will see a “new cocktail of globalization” in the next 10 years, with developments such as the energy transition creating new sets of interdependencies.

Threats to globalization

However, the report also acknowledges that threats to globalization are real, with today’s “turbulent environment” of geopolitical tensions and other crises not being beneficial to business and policy-making.

Like the World Economic Forum’s Global Risks Report 2023 – which lists “geoeconomic confrontation” as the third-biggest risk facing the world in the next two years – DHL’s Global Connectedness Index sees tensions between the US and China. The Index also highlights evidence of a decoupling between the world’s biggest economies, with flows of trade, capital, information and people between the two dropping as a share of each country’s total. This is illustrated by the chart below, where the bars (most recent shares) do not extend as far to the right as the circles (shares in 2016).

There is evidence of a decoupling of trade flows between the US and China, which is a threat to globalization.
There is evidence of a decoupling of trade flows between the US and China, which is a threat to globalization. Image: DHL Global Connectedness Index 2022.

But it says there is “very limited evidence” that this is leading to a “wider fracturing of the world economy into rival blocs”. So, what does the evidence say?

Trade: No sign of shift in flows

International trade has bounced back quickly since the pandemic, according to DHL. The war in Ukraine has slowed things down, but growth in goods and services trade in 2022 was still higher than the average annual growth across the previous decade.

A graph showing global merchandise trade volume, January 2018 to November 2022. Globalization
The volume of goods trade was 10% higher by mid-2022 than at the end of 2019. Image: CPB World Trade Monitor/DHL Global Connectedness Index 2022.

The volume of goods trade was 10% higher by mid-2022 than at the end of 2019, and while trade in services dipped because of COVID-19’s impact on travel and transportation, it returned to above pre-pandemic levels in early 2022.

In terms of where this trade is coming from and going to, the report says that “predictions of a shift from globalization to regionalization are not borne out in broad patterns of international flows”.

As the yellow lines on the charts below show, international flows of trade – as well as flows of capital, information and people – have generally been taking place over longer distances since 2001. And there’s been a correlating drop in flows staying within regions.

Multiple graphs showing average distance and regionalization trends, 2001-2021. Globalization
International flows of trade have generally been taking place over longer distances since 2001. Image: DHL Global Connectedness Index 2022.

Trade is likely to grow more slowly in 2023 because of weaker macroeconomic conditions, the report says, but it does not expect a “transformational shift” on regionalization in the near to medium term.

Capital: Indicators are broadly stable

Flows of international capital have also recovered from pandemic-era declines, the report says, based on United Nations Conference on Trade and Development (UNCTAD) data. In 2021, there was a 64% rise in foreign direct investment (FDI), which is when a company or government from one country invests in a company or project in another country. This outstripped the 35% dip seen in 2020.

A graph showing foreign direct investment inflows, 2001-2021.  Globalization
FDI inflows increased in all regions in 2021, but have since been dented by the war in Ukraine Image: UNCTAD World Investment Report/DHL Global Connectedness Index 2022.

FDI inflows increased in all regions in 2021, and they continued on this path in early 2022. However, the outbreak of the war in Ukraine and the subsequent economic weakness led to a 31% dip in FDI flows in the second quarter compared with the first.

Other indicators of capital flows remain stable or are growing, the report says. There is a steady appetite for international mergers and acquisitions, and strong growth in flows of international payments for the use of intellectual property, linked to intangible assets and digital economies.

Information: Digital globalization continues, but signs of fragmentation on horizon

The era of “digital globalization” has led to a boom in international information flows. The lockdowns of 2020 triggered a 47% rise in global internet traffic, and since then growth has slowed but remained strong at 23% in 2021 and 29% last year.

Digital globalization has led to a surge in internet traffic.
Digital globalization has led to a surge in internet traffic. Image: TeleGeography/DHL Global Connectedness Index 2022.

But concerns around cybersecurity and moves by some countries to protect their domestic technology sectors are leading to increased regulation around some data and information flows. “The European Union, the United States, China, India and Russia have each embraced distinct approaches to the governance of international data flows, increasing complexity and raising concerns about fragmentation,” the report says.

Discover

How can responsible data collection inspire trust?

Studies consistently show how open information flows support trade output and productivity, the report points out. There is also evidence that sharing data can improve the quality of scientific research, it says.

Rapid data sharing was critical to swift development of COVID-19 vaccines, according to international vaccine alliance GAVI, so the DHL report’s observation that international scientific collaboration is slipping – as measured by the proportion of scholarly articles with co-authors located in more than one country – should be a signal to policy-makers.

A graph showing international collaborations of total publications from 2001 to 2021. Globalization
Cross-border scientific collaboration has slipped slightly. Image: DHL Global Connectedness Index 2022/Clarivate Web of Science.

People: Cost-of-living crisis hits travel, but visa-free movement increasing

There have been dramatic impacts on flows of people in recent years. The lockdowns of the COVID era cut off international travel for many, and there have been rises in refugee numbers because of unrest in Ukraine, Syria and Afghanistan.

Now, surging inflation and a cost-of-living crisis are dampening the recovery in leisure travel, leaving it 37% below 2019 levels in 2022. This has also led to downgrades in travel growth forecasts by groups such as the UN World Tourism Organization. International traveller numbers are not seen getting back above pre-pandemic levels in 2023.

A graph showing international tourist arrivals per capita from 2001 to 2021. Globalization
COVID-19 lockdowns cut off international travel for many. Image: UN World Tourism Organization/DHL Global Connectedness Index 2022.

On the positive side, travel either without a visa or without the need to obtain a visa before arrival is becoming easier. Around 54% of country pairs allow travel in this way – equal with the record set in 2019.

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