Globalization isn’t making the world economy as small as nationalist politicians like Donald Trump insist.
The world’s largest shipping company, DHL Express, released a “global connectedness index” today to argue that most people don’t understand globalization. We’ll bite.
The shipper’s interest is parochial: The more global connectedness, the more stuff it gets to carry around, but the current political environment isn’t exactly rah-rah about cutting down the barriers to goods, services, people and information flowing among countries.
In one exercise, the researchers who compiled the index compared a survey of 6,035 managers across three advanced economies (Germany, the UK, and the US) and three emerging economies (Brazil, China, and India) to actual economic indicators. People presumably well-positioned to observe the global economy missed the mark:
The connectedness index, which DHL has been compiling since 2001, hit a record high in 2017, its latest reading. Still, the researchers noted, that year less than a third of global GDP came from exports and foreign direct investment flows equalled just 7% of new investment.
“A very high proportion of what we are talking about as globalization is really activity that takes place in regions or among neighbors,” Steven Altman, a New York University researcher who helped develop the index. “The international flows themselves are smaller than people think. “
The index itself combines measures of goods and services trade; international investment; measures of information sharing like internet access, phone calls and print publications; and people-focused indicators like migration, tourism and foreign students.
Consider Bulgaria, which at number 29 ranks a step above the United States (30) on this connectedness index. It turns out the small EU country is far more reliant on trade than the US, with 50% of GDP coming from exports, and 18% of its population emigrating, presumably to other EU states. It also is rated as having faster internet than the US.
In this case, the size of the US economy works against it: The US is just so big that it produces a lot of stuff itself—the trade deficit that worries Donald Trump IS big, at $556 billion in 2017. But it was also barely equal to 3% of total US economic production that year. When it comes to migration, Americans who want to leave home have a lot more options for internal movement.
Other measures suggest connectedness is more illusory than we think: For example, many of the top ten most-connected countries use low taxes and corporate secrecy to benefit from artificially inflated capital flows—the Netherlands, Singapore, Switzerland, Germany, Luxembourg, United Arab Emirates, United Kingdom, Ireland.
And it’s not a surprise that many European Union states are in the top ten as well, with the only two who aren’t among the top secrecy jurisdictions—Belgium and Denmark—simply small economies that are deeply integrated into their regional market.
According to DHL, this data should calm people in the US and other countries who fear that unconstrained globalization is challenging their national identities. It is neither the juggernaut trend predicted in the “World is Flat” days in the early 2000s, nor is it a process that can be easily halted. In the interestingly-chosen words of DHL CEO John Pearson, ”globalization and trade is much too big to fail.”
The Top 50 Most Connected Countries
Here’s the index’s ranking, along with the changes in country’s rank compared to last year.
1. Netherlands (0)
2. Singapore (0)
3. Switzerland (+1)
4. Belgium (+1)
5. United Arab Emirates (+2)
6. Ireland (0)
7. Luxembourg (-4)
8. Denmark (0)
9. United Kingdom (+2)
10. Germany (-1)
11. Norway (-1)
12. Malaysia (+1)
13. Sweden (-1)
14. Czechia (+4)
15. France (+2)
16. Korea (Republic of) (0)
17. Israel (-3)
18. Hong Kong SAR (China) (-3)
19. Austria (+2)
20. Hungary (0)
21. Spain (+3)
22. Bahrain (+15)
23. Slovenia (+4)
24. Taiwan (China) (-2)
25. Thailand (0)
26. Italy (0)
27. Estonia (+11)
28. Finland (+4)
29. Bulgaria (-1)
30. United States (-1)
31. Iceland (-8)
32. Cyprus (+11)
33. Australia (+2)
34. Malta (-15)
35. Portugal (-4)
36. Poland (-2)
37. Canada (-4)
38. New Zealand (-8)
39. Viet Nam (-3)
40. Mauritius (+2)
41. Slovakia (+4)
42. Japan (-2)
43. Lithuania (+6)
44. Latvia (+3)
45. Qatar (-6)
46. Greece (+2)
47. Saudi Arabia (-3)
48. Seychelles (+2)
49. Cambodia (+4)
50. Lebanon (+2)