Is globalization running out of steam? A new study shows that cross-border investment and trade flows declined worldwide in 2012, ending a two-year recovery after the global financial crisis.
Weak economic conditions, especially in Europe, were partly to blame for the downturn, the study says. More worrisome, though, are increased protectionist measures enacted by national governments and the failure of multinational companies to capitalize on growth in emerging markets, say authors Pankaj Ghemawat and Steven A. Altman of the IESE Business School in Barcelona. “The largest threat to globalization comes from policy fumbles, rather than macroeconomic fundamentals,” they write.
Ghemawat and Altman analyzed data on trade and other indicators to gauge what they term the “depth of globalization.” Trade and investment flows, after increasing robustly until 2007, dropped sharply during the 2008-09 crisis, then started rising again in 2010 and 2011. Last year, though, the dollar value of foreign direct investment inflows worldwide dropped 21 percent, while trade in merchandise declined slightly, and trade in services was flat. All told, the world was “less deeply interconnected in 2012 than it was in 2007,” the authors say.
Governments worldwide implemented more than 2000 protectionist trade measures after the onset of the global financial crisis, and only about 10 percent of them have been unwound, the study says.
The authors also contend that trade and investment flows would rise if multinational corporations learned to “crack the code for competing in emerging economies” where growth is strongest. The 100 biggest companies headquartered in advanced economies derived only 17 percent of their revenues from emerging markets in 2010, even though those markets are projected to contribute more than 70 percent of global economic growth through 2025, the study says.
The study also includes a ranking of 139 countries’ based on the depth of their international flows of trade, investment, migration, and information. The top five are Hong Kong, Singapore, Luxembourg, Ireland, and Belgium. The U.S. ranks No. 91.
Despite sagging investment and trade, the study says that global tourism continues to grow, with the number of international tourist arrivals in 2012 exceeding 1 billion for the first time.