On many measures, the process of globalisation seems to have slowed down. Despite the fretting, that doesn’t mean more trouble for the world economy.
Has the world hit “pause” on globalisation? The latest KOF Index of Globalization, from the KOF Swiss Economics Institute, indicates that many countries have had as much globalisation as they’re going to get, at least for the immediate future. The numbers appear to show they have hit a ceiling for cross-border trade, investment and knowledge sharing.
Using data from 2012 [the most recent available], the KOF researchers found that globalisation was stagnating, and measures of political, social and economic connectedness had plateaued in many nations. And while the global financial crisis played a part in the slowdown, it’s not the only cause.
It’s a trend that’s been evident for several years. Back in 2013 The Economist magazine fretted that “a new, gated kind of globalisation” had overtaken many nations since 2008 – the year the Doha world trade talks collapsed and the global financial crisis arose.
Morgan Stanley’s then global head of economics, Joachim Fels, also worried in 2013 about “a creeping trend towards a de-globalisation of economic activity and capital flows”.
Fast-forward to February this year, and Joshua Kurlantzick from the US Council on Foreign Relations wrote an article headlined “Deglobalization Remains a Powerful Trend”. DHL’s Global Connectedness Index has also shown a globalisation drop-off since 2008, although with a modest recovery in recent years.
Malaysia is now as globalised as Germany and more globalised than New Zealand.
Some other indicators are less gloomy. The Maastricht Globalisation Index shows overall globalisation still on the rise between 2000 and 2012. Much of this increase is due to technology, say the Maastricht index’s creators, but they also note that “globalisation processes … are slowing down in general”. The most globalised countries may be reaching what is, for the moment, “a maximum level of globalisation” unconnected to laws, they conclude.
And it’s true that while trade growth has slowed in recent years, there’s little actual evidence of a substantial rise in trade and investment barriers.
A closer look at the KOF index’s year-by-year numbers lends support to the view that globalisation has hit a pause. The KOF numbers say that in highly connected areas such as Europe and Australasia, globalisation hit a natural ceiling somewhere between 1999 and 2002.
Scores then moved sideways, even through the global prosperity and tariff cuts of the early to mid 2000s.
Why has this globalisation ceiling appeared? World Bank and International Monetary Fund economists have one possible reason: perhaps nations have simply wrung all the easy gains out of global supply chains, which boomed in the 1980s and 1990s.
If this is right, globalisation scores may not say much about the world’s immediate economic future. The global economy is still ticking along, and most nations are getting along with each other, far better than at most times in history. Advanced economies may have globalised as far as they can for now, but the planet doesn’t seem to face a globalisation crisis just yet.
As several of globalisation’s would-be measurers put it in a 2014 paper, New Directions in Globalization Indices, the task of measuring globalisation contains many “pitfalls”. Each index tries to capture a broad picture of globalisation through a weighted mix of published numbers. Each tries to minimise opinions and stress the veracity of their data.
The DHL index’s creators rightly warn of the need to avoid “globaloney”, but that is easier said than done. Weight your index towards financial flows and globalisation falls after 2007; emphasise telecom traffic between countries, and global connectedness soars each year.
The DHL index includes “12 types of trade, capital, information, and people flows”, including tourism. The KOF index has all that and more – everything from trade value and tariff rates to membership in international groups, telephone and internet use, and even the number of IKEA stores and McDonald’s restaurants.
Read the studies
Malaysia, globalisation star
Most indices of globalisation give the overall crown to a western European nation such as Belgium, Ireland, the Netherlands or Germany, which stand at the intersection of key trade routes. The poorest countries generally do worst, an obvious reminder of globalisation’s benefits.
But in most globalisation indices, Malaysia’s performance comes near the top. And unusually for an already well-connected economy, its globalisation scores have continued to rise since 2000.
The DHL study’s authors point out that several South-East Asian economies stand out as more globalised than their size and wealth would suggest. But Malaysia is the leading outperformer, followed by Vietnam and Cambodia.
Similarly, the KOF index shows big improvements in recent years by Malaysia, Vietnam and Thailand. On the KOF index, Malaysia is now as globalised as Germany and more globalised than New Zealand.
This article is from the July issue of INTHEBLACK