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Track Connectedness Today to Deliver a Better Tomorrow

Deutsche Post DHL´s Delivering Tomorrow: Logistics 2050 report looks deep into the future and poses a range of scenarios varying with respect to, among other factors, how connected the future will be across borders and distance. There is strong evidence, some presented in the DHL Global Connectedness Index 2012, that a more connected world would be far more prosperous and pass along to future generations a host of cultural and other non-economic benefits.

Recent trends since the onset of the financial crisis are not encouraging. The DHL Global Connectedness Index measures the depth and breadth of the world’s trade, capital, information, and people flows, incorporating more than one million data points from 2005 up to the present. Global Connectedness was growing up to 2007, declined sharply from 2007 to 2009, and despite modest gains since then remains significantly below its 2007 peak.

That global connectedness has faltered since the onset of the financial crisis sends a clear message that the broad trend of rising connectedness that has prevailed since World War II and has contributed to unprecedented levels of prosperity is fragile and subject to reversals. Global Trade Alert reports that three times more discriminatory trade policy measures have been implemented since November 2008 than liberalizing or transparency-enhancing measures. We cannot simply take for granted that future generations will enjoy the benefits of a more connected planet. Rather, decisions taken today will exert a powerful and not necessarily positive influence on what the world will look like in 2050.

The world is less globalized than is commonly presumed

An accurate understanding of the extent of globalization today is a prerequisite for an informed position about whether it should be increased or scaled back, and yet hard facts about how connected the world really is seldom enter into the heated debates that take place on this topic. The DHL Global Connectedness Index aims to fill this gap by providing a comprehensive and up-to-date set of facts and analyses to help readers to make more informed judgments about the possibilities associated with forging more cross-border connections. Its basic premise was well-expressed by the late Daniel Patrick Moynihan when he said, “Everyone is entitled to his own opinion, but not to his own facts.”

At the global level, the DHL Global Connectedness Index reveals that the world is less globalized than is commonly presumed. Far more of nearly every type of activity that could take place either within national borders or across them is domestic rather than international. To cite just a few examples, only 2% of telephone calls are international, immigrants make up only 3% of the world’s population, foreign direct investment (FDI) comprises only 10% of gross fixed investment around the world, and roughly 20% of economic output is traded across national borders. Business executives tend to overestimate these and other measures of globalization by three times or more: commonplace notions of globalization are so far off base that is it fair to call them “globaloney.”

The fact that the world is less connected than most people think helps calm many fears about globalization. The French public on a recent survey estimated that immigrants make up 24% of France’s population. The correct figure is only 8%. Would anti-immigrant rhetoric have been so prominent in the 2012 French elections if the public had a more accurate read on the present extent of globalization?

The finding of limited global connectedness also implies that there is surprisingly large headroom available for smart and balanced policies to tap increased connectedness to expand prosperity. Analyses presented in the DHL Global Connectedness Index 2012 explain how the gains from expanding connectedness could reach trillions of dollars.

Because national policies can have large effects on countries’ connectedness, the DHL Global Connectedness Index measures and ranks—on a country by country basis—the global connectedness of 140 countries that account for 99% of the world’s population and 95% of its GDP. The world’s most connected countries in 2012 were, in descending order, the Netherlands, Singapore, Luxembourg, Ireland, Switzerland, the United Kingdom, Belgium, Sweden, Denmark and Germany.

Europe is still the world’s most connected region

The fact that 9 of the top 10 countries are located in Europe reflects Europe’s broader standing as the world’s most globally connected continental region. The least connected region is sub-Saharan Africa, but, encouragingly, that was the region where countries averaged the largest increases in their global connectedness from 2010 to 2011.

The DHL Global Connectedness Index also features policy analysis aimed at helping countries capture more benefits of global connectedness. A specific set of policy and structural measures are identified that explain nearly 80% of the observed variation among countries’ global connectedness depth scores. Policies that directly target expanding international flows as well as policies that focus on improving countries’ domestic business environments both turn out to contribute significantly to deepening countries’ global connectedness.

Three country cases are examined in more detail to illustrate national policies to promote global connectedness in diverse contexts. The case of the Netherlands, the most globally connected country in the world, highlights the power of regional integration to increase a country’s global connectedness but also reminds us even the top-ranked country has significant headroom to become more connected. The case of Vietnam provides a dramatic example of how a very poor country can, with appropriate policy shifts, deepen its connectedness very rapidly and reap large gains. And Mexico provides an opportunity to examine the interplay between the depth and breadth of a country’s connectedness: in this case, limited breadth is responsible, in part, for also limiting depth.

One of the new features in this year’s report is the analysis of global connectedness at the industry level. The globalization of 20 industries is compared, dispelling the myth that every industry is rapidly becoming globalized. And three industry case studies – pharmaceuticals, passenger cars, and mobile phones – illustrate how the shift of economic activity to emerging markets is reshaping industry connectedness.

The DHL Global Connectedness Index charts a complex world of limited and uneven connectedness. The world’s most deeply connected country is hundreds of times more connected than the least connected country. Every country is more connected on some dimensions than on others. And connectedness also varies widely among industries. In this complex world, globalization is not a take-it-or-leave-it binary proposition, nor is it best pursued through worldwide application of one-size-fits-all policy prescriptions. Rather, countries should pursue customized connectedness strategies that respect their structural and historical conditions. To set the right course toward 2050, one must start with a clear read on one’s present position and heading, which is what the DHL Global Connectedness Index aims to deliver.

More information on the Global Connectedness Index 2012

Table: GCI Sores and Ranks 2005-2011

Frank Appel: Why global connectedness matters

Is globalization still the answer? – Delphi Dialog with Frank Appel and Pankaj Ghemawat

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