Globalization has risen to the top of the political agenda in many parts of the world, but all too often, debates about connecting across borders have left us more divided within countries. Policy uncertainty and volatility have followed rather than broad support for constructive paths forward. One reason is that perceptions about globalization often overshoot the reality of the flows that take place between countries.
The DHL Global Connectedness Index can help strengthen the globalization debate by grounding it in simple measures of international flows. The 2018 edition of this report, which I co-authored with Pankaj Ghemawat and Phillip Bastian, tracks 12 types of trade, capital, information, and people flows from 2001 through 2017. It measures globalization worldwide, by region, and for 169 countries and territories that comprise 99% of the world’s GDP and 97% of its population.
Connectedness Rose to a New Record Level
Despite predictions that globalization might collapse under a wave of economic nationalism, the DHL Global Connectedness Index rose to a record high in 2017. For the first time since 2007, trade, capital, information, and people flows all intensified significantly. While 2018 saw major policy threats to globalization turn from rhetoric to reality, preliminary and partial data generally point to continued gains last year, with the main exceptions pertaining to capital flows.
Globalization does, however, face significant threats. Protectionism, as well as slowing economic growth, have already prompted downgrades to 2019 trade forecasts. Tighter restrictions on foreign corporate takeovers could further cut capital flows. Data localization laws might crimp the growth of information flows. Moreover, stricter limits on immigration-the most controversial type of people flows-remain popular in many countries.
It is important, however, not to overlook positive policy developments for globalization. While trade tensions dominated the headlines in 2018, this was also a year of landmark trade agreements. In March 2018, 11 countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and 44 signed the African Continental Free Trade Agreement (AfCFTA). In July, the European Union and Japan finalized an Economic Partnership Agreement. In October, the United States, Canada, and Mexico agreed on a new trilateral trade deal. Meanwhile, China continued to advance its Belt and Road Initiative aimed at strengthening linkages between Asia, Europe and Africa.
Perceptions Overshoot Reality
Even after globalization’s recent gains, the world is much less globalized than most people think it is. The large majority of flows that could take place either within or between countries are still domestic rather than international. For example, just about 20% of economic output around the world is exported, foreign direct investment flows equal 7% of global gross fixed capital formation, roughly 7% of phone call minutes (including calls over the internet) are international, and only 3% of people live outside the countries where they were born.
On a six-country survey conducted in 2017, managers overestimated all of those globalization metrics, as well as several others. The average respondent guessed that the world was five times more globalized than it really is! That is roughly on par with results from earlier surveys of the general public in the United States and of students in a wide variety of countries. And such misperceptions seem to fuel fears about globalization. People who overestimate globalization levels more than others do tend to worry more about globalization exacerbating climate change, inequality, and other problems.
Furthermore, it is also a myth that advances in transportation and telecommunications have rendered distance irrelevant. If the world had really become “flat” and distance (as well as other cross-country differences) no longer mattered, international trade, capital, information, and people flows would be expected to travel 67% further than they do today. In fact, international flows are so far from global that about half take place between countries and just their top three origins and destinations.
New Country Rankings
The world’s most globally connected countries in 2017 are the Netherlands, Singapore, Switzerland, Belgium, the United Arab Emirates, Ireland, Luxembourg, Denmark, the United Kingdom, and Germany. Eight of the top 10 most connected countries are in Europe, the world’s most connected region, which tops the index for trade and people flows. North America ranks second overall, and leads in terms of capital and information flows.
Focusing specifically on the “depth” of countries’ international flows relative to domestic activity, the economies with the highest proportions of their flows crossing national borders are Singapore, Hong Kong SAR (China), Belgium, the Netherlands, and Luxembourg. The leaders in terms of depth tend to be wealthy and relatively small countries.
When it comes to the “breadth” of countries’ flows across origins and destinations, the countries with the most global flow patterns are the United Kingdom, the United States, the Netherlands, Japan, and the Republic of Korea. The economies that lead on breadth also tend to be wealthy, but they are much larger than the depth leaders.
There are stark differences between levels of globalization in advanced versus emerging economies. Emerging economies trade almost as intensively as advanced economies do, but advanced economies are three times as deeply integrated into international capital flows, five times for people flows, and nine times with respect to information flows. Additionally, while leaders from large emerging markets have become major supporters of globalization on the world stage, emerging economies’ progress catching up in terms of global connectedness has stalled.
Looking to the Future
In the 2016 edition of the DHL Global Connectedness Index report, we wrote that, “the world economy is shrouded in an unusual amount of ambiguity.” This characterization, unfortunately, remains valid today: What form will Brexit ultimately take? How, if at all, will the US-China trade conflict be resolved? Can institutions such as the World Trade Organization continue to function in a changing geopolitical environment?
Globalization’s future lies in the hands of policymakers around the world. Trade conflicts have contributed to slowing global growth, serving as a reminder that, just as increases in global connectedness can accelerate growth, deglobalization can dampen it. In such an uncertain environment, the measures in the DHL Global Connectedness Index report can help companies and countries navigate through the turbulence. Depth measures help identify which countries are most exposed to threats to particular types of flows, and breadth data can help determine whether that exposure is global or more narrowly focused.
More optimistically, data in the report can contribute to more productive debates about globalization by calming fears due to exaggerated perceptions of international flows. Consider immigration, which topped some 2018 polls of public concerns in Europe and the United States. On both sides of the Atlantic, people believe there are more than twice as many immigrants in their countries as there really are, and when they are told the correct proportions of immigrants in their countries’ populations, the share of survey respondents viewing immigration as a problem declines.
Recent proclamations that globalization is dead have proven no more accurate than declarations a decade ago that globalization had rendered borders obsolete and distance irrelevant. International flows and their constraints are both formidable, and they vary over time, across locations, between industries, and so on. The coming years may bring a new wave of globalization, a plateau, or another reversal. Whichever scenario plays out, the biggest winners are likely to be companies and countries that embrace globalization’s complexity rather than succumbing to dichotomies between purely local versus global visions of the future.